US News

Could the Bank of England really hike rates by the end of the year?



© Reuters.

By Samuel Indyk

Investing.com – Comments from Bank of England officials over the weekend have prompted money markets to price in a first hike by the Bank of England before the end of the year, a move that would have been unthinkable less than a month ago.

The CME’s BoEWatch tool is showing a greater than 47% chance of a rate hike by the end of the year, from a less than 8% chance a month ago. The tool uses MPC SONIA futures prices to gauge market expectations of the future path of Bank of England interest rates.

Bailey and Saunders comments

Over the weekend, comments from the Bank of England Governor Andrew Bailey and external Monetary Policy Committee (MPC) member Michael Saunders have added to expectations that policy might be tightened sooner than previously thought.

Speaking to the Yorkshire Post, Bailey said he was “concerned” about inflation being above the central bank’s target.

“Unfortunately, if you look at our last forecast, it [inflation] is going to go higher I am afraid,” Bailey told the regional newspaper. “As the Bank of England governor I would prefer it not be there.”

The Bank of England’s latest projections from August saw inflation rising to around 4% in Q4 this year and Q1 next year but the Committee said they expected above-target inflation to be temporary and return to around the 2% target in the medium term.

Saunders was even more explicit on the need for interest rate hikes. The former Citigroup (NYSE:) economist told the Telegraph that households should be prepared for “significantly earlier” rises in the interest rate.

See also  Germany eyes $190 billion in new debt in 2021 - sources

Talking on rate hikes, Saunders said: “The February one is fully priced in and for December, it’s half priced in. I’m not trying to give a commentary on exactly which one, but I think it is appropriate that the markets have moved to pricing a significantly earlier path of tightening than they did previously.”

It is worth noting that Saunders is one of the more hawkish members on the rate-setting MPC and voted alongside Dave Ramsden to reduce the target stock of government bond purchases at the last meeting to £840 billion.

Could the Bank of England vote to raise rates this year?

The answer to this question may become clearer by the end of the week when two more members of the MPC are scheduled to have spoken publicly.

On Wednesday, Deputy Governor is scheduled to be speaking, however, a speech that may be of greater interest will be that of on Thursday. Tenreyro is one of the more dovish members of the Bank of England but if she shows any concerns over rising inflation then it may signal that the central bank is serious about hiking interest rates by the end of the year.

Data

This week, the UK’s Office for National Statistics releases data on Tuesday and monthly figures on Wednesday. The labour market data will be closely watched in the coming months after the end of the government’s furlough scheme in September, which could see the addition of over 1 million workers to the labour force.

“As the BoE has pointed out, the demand/supply imbalance situation in labour market is particularly uncertain at present,” said Lloyds (LON:) Bank analysts in a note. “Just how it is resolved will be an important determinant of whether wage growth is likely to accelerate sufficiently to add to concerns about inflation.”

See also  Trade and UK politics retain capacity for shock value
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





READ SOURCE

Leave a Reply