UK Rate Rise?

We waited over 10 years for a Bank of England (BoE) interest rate increase, now many investors and analysts are expecting another one very soon.
The BoE’s Monetary Policy Committee looks almost certain to keep rates at 0.50 percent next Thursday, so it can weigh up the impact of November’s historic rise on the economy as it heads for Brexit.

Still, the possibility of another rate rise is expected sooner rather than later – perhaps in May. Some investors think rates could even rise twice this year.

While Britain’s economy is lagging behind the global recovery, it has held up better than the gloomy forecasts made at the time of the 2016 vote to leave the European Union.

Governor Mark Carney has sounded a bit more upbeat recently, noting how wage growth is finally picking up and saying the focus of the BoE is shifting back to tackling above-target inflation.

Financial futures prices are implying a 50-50 chance of a 25 basis-point rise in rates in May.

Inflation seems to have peaked after hitting a nearly six-year high of 3.1 percent in November. Wages are rising by only about 2.5 percent a year, half their pre-crisis pace.

In addition, a recent recovery in the battered value of sterling, combined with signs that global oil prices will fall in the future, might prompt the BoE to bring forward the date at which it expects inflation to sink back to its 2 percent target.

After voting 7-2 for November’s rate rise, they were united in a 9-0 decision for no change in December.

Another 9-0 vote would not rule out the chance of a hike in May because the MPC can send a new signal at its meeting in May.

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