BoE's Mark Carney says United Kingdom rate hike looms in Brexit-hobbled economy

GBP  USD Daily Chart- Pivot Points

GBP USD Daily Chart – Pivot Points

Sterling rose as much as 3.3 percent last week alone after the Bank of England signalled that it was likely to raise interest rates in the "coming months".

"Given that the MPC's Vlieghe cited last week that a recovering UK consumer was one of the reasons underpinning his view for a rate hike in the coming months; risks are that a negative surprise in Aug UK retail sales today could weigh on November rate hike odds (currently 60%) and fuel any cautious GBP sentiment ahead of PM May's keynote Brexit speech on Friday", says Krpata.

In his speech, Mr Carney also discussed the impact of globalisation, demographics and technology on the world economy and monetary policy.

An economics think tank says the Bank of England's (BOE) latest policy adjustment will allow the United Kingdom to offset post-Brexit headwinds, restoring consumer spending and investment. CEBR's revision is motivated by last week's BOE statement saying they are weighing raising base borrowing costs from the current ultra-low 0.25 percent, as macroeconomic data is providing a better foundation than expected earlier.

Mr Carney's comments come in light of the market now pricing in a near 100 per cent chance of United Kingdom interest rates moving upwards within 12 months.

"In his speech, Mark Carney highlighted diminishing slack in the United Kingdom economy and observed that this reduces the BoE's tolerance of above-target inflation". The pound was down 0.7% against the common currency at €1.129.

James McCann, senior global economist at Aberdeen Standard Life, said recent comments from the Bank of England mean he now expects four interest rate rises by the end of 2019.

"The de-integration effects of Brexit can be expected to steepen the Phillips Curve and to be inflationary", said Carney in the 2017 Michel Camdessus Central Banking Lecture held by the International Monetary Fund (IMF) on Monday.

Brexit is an example of "stepping back in order to jump better", Carney said - employing the French phrase "reculer pour mieux sauter" - but he added that "any reduction in openness with the European Union is unlikely to be immediately compensated by new ties of similar magnitude with other trade partners".

Britain's inflation rate has accelerated this year, due in large part to the fall in the value of the pound since the referendum decision in June 2016 to leave the EU.

"Mark Carney is right to be gloomy about our post-Brexit prospects if we continue to follow the prescription of the Treasury, the CBI and the Bank of England", John Longworth of the British Chambers of Commerce (BCC) said.

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