Sterling jumps after United Kingdom retail sales beat expectations

Gladys Abbott
September 21, 2017

The Pound has performed strongly over the last week since Bank of England policy makers suggested interest rates could be raised over the coming months.

He reiterated the BOE's message that interest rates may need to rise "within months" to keep a lid on price growth, after annual inflation hit 2.9% in August, well in excess of the BOE's 2% target.

"It's traders digesting Carneys comments yesterday and assessing that they may have jumped the gun a little with regards to the timing of the first rate hike", said Jake Trask, corporate dealer at OFX.

He added: "Any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent, and to be consistent with monetary policy continuing to provide substantial support to the economy".

Mark Carney again warned that slack in the United Kingdom economy is diminishing and that this reduces the UK's tolerance of above-target inflation.

He said any reduction in openness with the European Union is unlikely to be immediately compensated by new ties of a similar magnitude with other trade partners. Other central banks around the world are also seeking to raise interest rates, which means "the case for a modest monetary tightening is reinforced".

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Carney said last week: "A withdrawal of part of the stimulus that the committee had injected in August a year ago would help to moderate the inflation overshoot while leaving monetary policy very supportive".

The budget offer, said to be at least £20 billion, is expected to be announced by PM May at a key Brexit speech on Friday, September 20.

"In addition, Mark Carney warned that on the supply side of the economy, Brexit-related uncertainties are causing some companies to delay decisions about building capacity and entering new markets and warned that prolonged low investment will restrain growth in the capital stock and increases in productivity". It is likely to stay above 2% for the next three years, Mr.

"The BoE has cried wolf before regarding rate hikes and although it seems likely to happen soon, it may not be this year".

Gertjan Vlieghe, one of the Monetary Policy Committee's staunchest advocates of lower-for-longer interest rates, helped propel the Pound to the top spot in the G10 performance table last week after he too told an audience that the time for a rate hike could be near. "The MPC could yet be deterred from acting if pay growth shows no sign of picking up over the coming weeks and the economy appears to be struggling during the autumn".

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