Bank of England warns of early interest rate rises

Bank of England warns of early interest rate rises

The Bank of England froze Thursday its key interest rate at 0.5 percent but cautioned that it could rise more quickly than expected to help bring down inflation.

The BoE also ramped up its outlook for the British economy, despite persistent uncertainty surrounding Brexit.

The central bank’s nine-strong monetary policy committee “voted unanimously to maintain bank rate at 0.5 percent”, said in a statement after a regular meeting.

However it also warned that borrowing costs could rise sooner than expected “in order to return inflation suitably to target”.

It added: “Monetary Policy would need to be tightened somewhat earlier and by a somewhat greater degree over the forecast period than anticipated”.

In reaction, the pound surged against the euro and dollar on the prospect of a potential rate hike as soon as May, according to analysts, and further rises thereafter this year.

Gross domestic product (GDP) was expected to grow by 1.8 percent this year, the BoE added in its latest quarterly economic forecasts.

That was up from the prior prediction of 1.6 percent in November.

The economy was then expected to expand by 1.8 percent again in 2019, when Britain is due to depart from the European Union. That was up from previous guidance of 1.7 percent.

“The global economy is growing at its fastest pace in seven years,” the BoE said Thursday.

“The expansion is becoming increasingly broad-based and investment driven. Notwithstanding recent volatility in financial markets, global financial conditions remain supportive.

“UK net trade is benefiting from robust global demand and the past depreciation of sterling,” it added.

The pound tumbled in value after Britain’s shock Brexit referendum in June 2016, but this has served to make exports cheaper for customers using stronger currencies. In turn, that has stimulated economic activity.

In recent times however, sterling has built up some strong gains against the dollar.

Also on Monday, the central bank maintained the level of its quantitative easing (QE), or stimulus cash, pumping around the economy at £445 billion ($620 billion, 502 billion euros).