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Bank of England's Mark Carney signals rate increase approaching

18 October 2017, 01:01 | Lionel James

GETTYThe pound was up ahead of an appearance by Governor Mark Carney

GETTYThe pound was up ahead of an appearance by Governor Mark Carney

The rate of inflation hit a five-year high in September, adding to expectations that the Bank of England will increase interest rates next month. Higher food prices and recreational goods were the main factors in the cost of living increase, said the Office for National Statistics.

Two new members of the Bank of England's Monetary Policy Committee cast some doubt on the likelihood of an increase in interest rates in November, though Governor Mark Carney said a hike "may be appropriate" and many economists remained confident of a hike.

Speaking to United Kingdom lawmakers in a second Parliamentary questioning session Tuesday, BOE Governor Mark Carney retained his stance on inflation.

In response to the comments the pound fell by 0.42% against the dollar to $1.3196.

Michael Hewson, chief market analyst, at CMC Markets, said: "As it is several members of the MPC have signalled that rates could move in the coming months and while we're hearing some stark warnings about the risks of reversing last year's rate cut, the bond markets have already made the adjustment and already priced it in".

"As a outcome we faced a trade-off - and we still face a trade-off - between having inflation above target and the need to support, or the desirability of supporting, jobs and activity".

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And Tenreyro, who is an economics professor at the London School of Economics, said: "My view is that we are approaching a tipping point at which it would be necessary or justified to remove some of that stimulus".

He said he anticipates having to write a letter to the Treasury explaining why inflation has risen above 3%.

'We believe the ability of the Bank of England to enter a rate rising cycle is severely limited by the slowing growth we are seeing in the UK.

James Smith at ING, arguing that underlying inflation is actually below the BoE target if ignoring the impact of sterling and energy, also felt a November rate hike was "highly likely" - though as CPI should peak at 3.1% in October and then gradually start to ease back, any subsequent MPS tightening "is likely to be very limited". In the face of high inflation we are still seeing little wage growth so the pressure is continuing to grow on United Kingdom households.

The Bank of England is making plans for a "hard" Brexit, he noted, but was still hoping for a transitional deal.

Consumer spending figures due out today are expected to reflect a continued upward trend in inflation.



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