That – along with an expected increase in inflation (how fast prices for a basket of goods and services rise) here and a more healthy United Kingdom economy – is expected to put pressure on the Bank of England to increase the rate of interest it charges banks to borrow money.
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Economists also suggest officials at the Bank of England would feel less pressured to rise rates once the Fed has taken up the task of becoming the first major central bank to tighten monetary policy since 2011. In Australia, the central bank publishes the minutes to its December meeting, and a mid-year update of the Federal Budget is likely to show a deterioration due to lower commodity prices.
“In this sense, I will proceed with caution”.
“The inflation outlook has continued to quell any expectations for a near-term hike in rates from the Bank of England, with the latest push lower in energy prices set to push down on the recovery in headline inflation over coming months”, Simon Smith, chief economist at FxPro, said in a research note after the data was out.
“Whatever the outcome, it will be important to maintain flexibility to respond to new data and events”. So what is implied through government bonds and interest rate swap market is not necessarily truly reflecting participants’ expectations of what is going to happen and should the downside risks from world economy fails to materialize and in absence of further shocks, she expects economy to warrant a steeper rate hike path from BOE, once wage growth falls in line with inflation returning.
The interest rate now stands at the historic low of 0.5%, a level it has been at for over six years, and any increase would be passed on to borrowers, from those with mortgages to those with credit cards.
The comments come as financial markets prepare for the Bank’s United States counterpart, the Federal Reserve, to raise interest rates for the first time in nearly a decade.
Shafik said all the MPC’s members believed that future rate hikes would gradual and limited, and that they believed a future Bank Rate of 2 percent would allow room for a material reduction in a loosening cycle of monetary policy, if needed.
Dr Shafik revealed her children’s nonplussed response at the dinner table: “All that work, and you do nothing?”
Asked for her response to the Government’s decision to implement a national living wage, Dr Shafik said: “Our estimates are that it will have a modest effect on total wage growth”.
United Kingdom rate-setter Minouche Shafik has said today she will not vote to lift interest rates from record lows until wage growth picks up.
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“This report is dovish since it shows the pressures on domestically generated inflation are lacking – reinforcing the case for bank rate to stay on hold for even longer”.
