BOE mildly prods market to expect a 2018 hike, pound not impressed

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BOE mildly prods market to expect a 2018 hike, pound not impressed

The still rising consumer credit levels and the savings rate falling back to a record low of 1.7 percent in the first quarter are likely to provide a supportive argument for those who want to raise interest rates in the near future. Such a sharp rise reflected sterling's fall from 1.48 USA dollars to the pound on the night of the referendum vote previous year to 1.31 US dollars now, having touched as low as 1.22 USA dollars in between.

The Bank of England has cut its economic growth forecasts and expects inflation will peak at 3% in October, driven by a weaker pound following the UK's vote to leave the European Union.

Jeremy Roberts, head of United Kingdom retail at BlackRock, says: 'Tomorrow marks the one-year anniversary of United Kingdom interest rates being cut to a record low of 0.25 per cent, and one year on we appear to be no closer to seeing an increase in the base rate'. The Bank's chief economist, Andy Haldane, also, surprisingly, said that he was also minded to vote to increase rates in the second half of the year.

The Bank slashed its economic growth forecasts for 2017 to 1.7% from 1.9% and lowered next year's estimate to 1.6% from 1.7%.

The cuts contrast with strong economic growth elsewhere around the world, which is enjoying its biggest boom in five years.

British blue chips suffered in June when the BoE's vote by a narrow 5-3 margin to keep rates on hold boosted bets that a rate hike was closer.

The governor has previously said the United Kingdom after Brexit could be the "investment banker for Europe".

But he added: "Even a limited pick-up in growth is likely to have consequences for the stance of monetary policy".

Since then one of the dissenters, Kristin Forbes, has left the central bank.

But US bank Citi said the BoE was probably more anxious about the risks of a disorderly Brexit than it let show.

The BoE has also brought an end to its Term Funding Scheme which was introduced to offer cheap funding to banks from February next year.

Carney has previously insisted the City has an important future role, despite Brexit, warning that European economies need to retain access to the City of London because the United Kingdom is the "investment banker for Europe".

For now, though, the GBP/USD looks like it wants to head lower, especially if it manages to break the key 1.3150 short-term support level on a daily closing basis.

Financial markets are now pricing in the first rate rise from the MPC in the third quarter of 2018, significantly sooner than they were expecting in May.

Among other upbeat news, retail sales in the euro zone increased by 0.5 percent in June on the month, well above market expectations of a 0.1 percent rise. We expect inflation to rise by more than the central bank is now predicting, peaking at 3.4 per cent this year.

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