The UK 10-year Gilt fell three basis points to 1.92% as Bank of England Governor Mark Carney said the timing of a first rate hike was drawing closer.
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LONDON-The Bank of England on Thursday signaled it remains on course to start gently raising interest rates in the United Kingdom early next year, damping speculation that it would quickly follow the U.S. Federal Reserve, which appears set for a September liftoff.
The Bank thinks growth in the third quarter of the year will come in at 0.7 per cent, and it revised up its estimate for growth over 2015 as a whole from 2.5 to 2.8 per cent.
The rise in the euro will be unwelcome for Irish exporters who have seen a huge rise in price competitiveness selling their goods and services into Britain because of weakness of the single currency over many months.
According to David Miles, an independent monetary policy committee member, interest rates should be brought back to normal from 0.5%.
It is the 78th consecutive month that the central bank maintaining the ultra low interest rate unchanged.
The Bank’s views in its quarterly report on the path of inflation will also be seen as critical.
“Rates will eventually have to rise and when they do, it should be done slowly and steadily”.
Investors were taken by surprise earlier on Thursday when the Bank said just one of its nine policymakers – Ian McCafferty – had voted for a rate hike at their August meeting, which ended on Wednesday.
“To the extent that the appreciation of sterling could be expected to weigh on inflation for a persistent period, the corresponding pickup in domestic costs necessary to return inflation to the target within three years would be greater”.
“The near-term outlook for inflation is muted”.
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A British economy that was still “in need of care and encouragement” seven years after the 2008 financial crisis, the Greek economy still in turmoil, and a drastic collapse in China’s stock market in recent weeks, were all cited as reasons to keep interest rates low. He backed rate hikes last year along with fellow MPC member Martin Weale but they rejoined the fold in January as oil prices tumbled. A weight the bank expects to bare down on inflation at least until the middle of next year.
