Sterling soars after Bank of England drops hint of a rate hike

Sterling soars after Bank of England drops hint of a rate hike”

While the ONS revealed that unemployment fell from 4.4% to 4.3% in July, the accompanying average earnings reported showed that wage growth remained flat at 2.1%, disappointing traders who had expected it to rise to 2.3% and prompting concerns about the growing gap between wages and inflation.

Policymakers voted 7-2 on Thursday to keep rates on hold at a record-low 0.25 percent, as expected.

European stocks are set to open higher Monday after another solid session in Asia where investor optimism was fuelled by a quiet weekend of geopolitical risks and a stronger US dollar.

The market pricing sees a 73 per cent chance of a rate increase in November this year, with an increase in interest rates by March now fully priced in.

"For now, it seems the net effect of the many underlying forces acting on the United Kingdom economy is that slack is continually being eroded and wage pressure is gently building", he said.

Speaking in London as part of the Society of Business Economists' annual conference, Gertjan Vlieghe, an external member of the Bank of England Monetary Policy Committee said that rates could rise "as early as in the coming months".

Yesterday, Mark Carney, who is the Governor of the BoE alluded to a increase in the United Kingdom interest rate in the next few months in order to deal with the inflationary pressures, and there is also talk of reigning in the current Quantitative Easing (QE) program. He said any rate hikes would be limited, gradual and that the global equilibrium real rate may be rising.

Other economists said they still thought the BoE was in no hurry, given the slowdown in Britain's economy this year and the doubts about what leaving the European Union in 2019 will mean.

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