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BoE Governor Carney still considering raising rates this year - MUFG

FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that the pound is deriving support from comments overnight from BoE Governor Carney who reiterated that he still thinks that conditions are right to consider raising rates around the turn of this year and not the turn of next year which is when the market is currently expecting the first rate hike.

Key Quotes

“He emphasized as well that the BoE will determine the timing for the start of the process of monetary policy normalisation consistent with UK conditions, and that the Fed’s monetary policy decisions were not decisive for the bank.”

“The case for raising rates gradually is supported by domestic demand strength in the UK but that he would want trends in growth, credit and inflation to all be consistent with a need for higher rates. He placed importance on evidence of building wage pressures which are supporting a recovery in underlying cost pressures.”

“The relatively hawkish comments from Governor Carney support our view for further pound strength and help to dampen the negative impact from the more dovish tone of the latest MPC minutes which were released yesterday.”

“The minutes revealed that the MPC judged that the near-term inflation outlook has weakened since August as headline inflation was likely to remain below 1.0% for longer until the spring of next year.”

“The negative impact of the slowdown in emerging economies on advanced economies was described as limited so far although it is increasing downside risks to growth in the UK ahead. The release of the updated Quarterly Inflation Report in November will provide a clearer signal as to whether the BoE still intends to raise rates in the first half of next year.”

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