Borrowers warned of imminent rise in United Kingdom interest rates

Gladys Abbott
February 10, 2018

The weakness of the pound and a surge in food prices continue to add to inflationary pressure in the United Kingdom, with the Bank of England is signalling a faster and steeper rise in interest rates to compensate.

This gloomy outlook over price growth has therefore suggested that the RBA does not feel conditions in the economy will warrant a tightening of borrowing costs for some time yet, with the next rate hike potentially not arriving until 2019, assuming the current economic uptrend does not accelerate above forecasts.

That's why the Bank of England has joined the Fed as changing course after years of super-low interest rates induced by the global financial crisis.

While some lawmakers in Prime Minister Theresa May's party want close ties with the remaining 27 European Union nations and a period of transition, others want a more fundamental break that would see Britain diverge more profoundly on matters related to regulations and trade.

"Conversely, we are growing cautious on those companies which rely heavily on overseas earnings, as rising interest rates could cause the pound to strengthen further from here".

The pound had started the morning recording solid gains versus its peers.

The warning from governor Mark Carney came as he delivered the quarterly BoE inflation report.

The bank observed that wage growth appears to be picking up.

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It was widely expected to keep rates on hold on Thursday as it weighed up the impact of November's move on the economy.

He said this week's sharp falls had only taken markets back to where they were two months ago, adding that investors may have overlooked the inflationary consequences of healthy growth figures across major economies.

This raises the spectre of higher mortgage payments for borrowers in the future.

The index has remained in negative territory after the BoE disclosed that its Monetary Policy Committee (MPC) had voted unanimously to maintain the interest rate at 0.5 percent.

The MPC said Brexit remained the biggest risk and greatest source of uncertainty to the outlook of the United Kingdom economy.

"I think there are some very big differences and as I pointed out, the equity markets, particularly in the USA, have risen a lot over the last 12 months and indeed, even today, we are roughly back where we were a couple of months ago". So the rate needs to go up.

The bank commented that if the United Kingdom economy grows as expected, monetary policy will have to be tightened somewhat earlier and by somewhat more than it was expecting last November. Despite last year's rate rise, there are misconceptions as to when consumers will actually see the results, particularly as some banks are failing to pass this on.

The central bank is a bit more optimistic about how fast the economy will grow during the next three years. If this is repeated for the February figures then the AUD could rise in value. Many schemes' funding positions will have suffered from the recent market volatility.

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