September 24, 2021

Will BOE Raise Interest Rates Sooner?

The Bank of England (BOE) raised the outlook for a faster -than -expected interest rate hike to withstand the inflation surge, which is now projected to exceed 4% following rising energy prices.

According to the Monetary Policy Committee (MPC), several developments were seen when the stimulus was implemented and this reinforced the factor for a moderate tightening in central bank policy despite the remaining uncertainties.

The central bank also agreed that future tightening should begin with an increase in interest rates even before the bond -buying program ends at the end of the year.

This has indirectly boosted investors ’expectations of seeing an interest rate hike sooner, which will likely be the first major central bank to raise rates since the Covid-19 pandemic hit.

Market players are now looking at a rate hike next year, which will start with an increase of 15 basis points from 0.10% as soon as March 2022.

These expectations have supported the strengthening of the pound and Britain’s 2 -year bond yield to the highest level since March 2020.

At its September policy meeting, the central bank unanimously voted to keep interest rates at 0.10% and target bond purchases of £ 875 billion.

However, two of the nine MPC members chose to end bond purchases earlier, namely Dave Ramsden and Michael Saunders.