BoE's Forbes votes for rate hike, others may follow soon

Tammy Harvey
March 18, 2017

Jeremy Duncombe, director of Legal & General Mortgage Club, said: "The Bank of England has chosen not to follow the Fed by voting for a rate rise - no surprise there".

Retail sales have weakened in line with expectation, although other indicators of consumer demand such as consumer confidence have been steadier than expected.

Today's decision by the Bank of England's Monetary Policy Committee (MPC) to keep interest rates unchanged at 0.25 percent, pushed the British pound to a 14-day high vs. the US dollar.

Apart from measures taken in interest rate actions, the bank also introduced on January 19 a foreign exchange swap mechanism in which the banks lend liras to the Central Bank while borrowing dollars to pay at a due date with a predetermined interest rate.

This was the first split between policymakers on rates since last July.

The bank is forecast to hold the rate on sight deposit at -0.75 percent and the target range for the three-month Libor between -1.25 percent and -0.25 percent. The recent plunge in crude oil prices could also help to take the pressure off a little, although the data for this will not come through for some time.

"Sterling is now trading around a one-week high above 1.1500 against the euro and above 1.2300 against the dollar, the highest levels since 1 March".

In a dovish speech earlier in March, Chile's central bank head, Mario Marcel, said a "more expansive" monetary policy would be necessary to meet inflation targets. "At the same time, it reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3 percent over the policy horizon".

The BoE expects Britain's economy to grow by a relatively strong 2.0 percent this year after withstanding the Brexit shock in 2016, but then to slow due to Brexit uncertainty.

But Samuel Tombs, at Pantheon Macroeconomics, says Forbes had made a parting shot by calling for a rate hike, adding that there were "few signs other members will join the new solitary hawk".

The MPC said that its judgements in the February Inflation Report remain "broadly on track", and that the expectation that there will be some modest withdrawal of monetary stimulus over the course of the forecast period remains appropriate. But it remains to be seen whether they will be willing to hike rates against the background of the Brexit negotiations and the risk of another Scottish independence referendum.

Other reports by Ligue1talk

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