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BoE warns of early interest rate hikes to arrest inflation

BoE warns of early interest rate hikes to arrest inflation


AFP
London
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", it 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.
Thursday's news comes after global stock markets tanked this week on fears that the US Federal Reserve would also ramp up interest rates more quickly than expected.
The BoE added in its latest quarterly economic forecasts that British gross domestic product (GDP) was expected to grow by 1.8 percent this year. 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 BoE meanwhile forecast Britain's annual inflation rate to hit 2.4 percent at the end of this year before slowing to 2.2 percent next year.
The BoE's chief task is to keep inflation close to a government-set target of 2.0 percent, while the current annual rate stands at 3.1 percent.
Governor Mark Carney, addressing reporters after the decision, said the bank would closely monitor the British government's ongoing Brexit negotiations.
"There will be ups and downs in financial markets, and the Brexit process will twist and turn before it is concluded," Carney told journalists, stressing that any rate rises would be gradual and limited in nature.
"Whatever happens, the committee will monitor developments closely and respond appropriately to ensure that inflation returns sustainably to the 2.0-percent target."
The pound had 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.

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