Bank deputy governor urges calm on markets

It was widely expected to keep rates on hold on Thursday as it weighed up the impact of November's move on the economy.

The market was putting the chances of an interest rate rise in May at 50/50 even before the Bank's inflation report, but now sees the chance of a rate rise that month as more probable than that, while a rate rise in August - a month after Mr Carney celebrates his fifth anniversary of becoming governor - is seen as a done deal.

In the event, the Pound rose against the Euro with the EUR/GBP falling to a low of 0.8731 and GBP/EUR hitting a best of 1.1449. "We see one interest rate hike to 1.25% during 2019, and another two interest rate hikes in 2020, taking interest rates up to 1.75% by the end of the year". We continue to be relatively defensively positioned in equities, despite the recent dip, and are looking at certain sectors - such as financials - which tend to benefit from a rising interest rate environment.

The Bank of England have announced earlier today that they may be gearing up to increase interest rates in the United Kingdom if the economy continues to show signs of positive growth combined with increased inflation levels.

As long as USA crude oil inventories continue to build this is likely to keep something of a lid on CAD exchange rates, with oil prices set to retreat further back towards the US$60 per barrel mark.

High inflation is the Bank of England's main reason for wanting to raise rates.

The interest rates in the United Kingdom were raised for the first time in a decade in November, and now the attitude is that the next hike will come faster than expected.

This scenario, however, will leave inflation above 2% in three years, which can be judged to increase interest rates with more than the expectations of investors.

Unemployment is at its lowest for 43 years and, finally, wages are starting to pick up - as one would expect when the jobless rate is so low.

The Pound Sterling to Australian Dollar exchange rate is up 0.2% today as markets continue to favour GBP following yesterday's "Super Thursday" announcements from the United Kingdom central bank.

Economists now believe that the economy will increase by 1.8 per cent in 2018 - up from the 1.6 per cent they have previously predicted.

'However, the Bank upgraded its forecast for the United Kingdom economy slightly today, citing stronger global conditions.

He has additionally hinted at raising United Kingdom interest rates in the near-future, assuming that Brexit negotiations continue to go smoothly.

Combined, markets have now overwhelmingly come to expect a rate increase from the bank as early as May - a prospect that sent the Pound flying.

Carney did mention that monetary policy changes will depend on data - saying that "timing of the next rate hike will depend on economic data" - so between now and then inflation and consumer data points are going to be paramount.

The chancellor replied by stressing the importance of boosting United Kingdom productivity and the government's efforts to make that happen.

  • Eleanor Harrison