The Bank of England has implied an interest rate rise may be imminent to combat rising inflation
The Bank of England
today implied that an interest rate hike could occur in 2011 as a result of spiraling inflation.
In its latest quarterly inflation report, the Bank admitted that the increase in utility prices will keep inflation levels high.
‘[There is a] good chance inflation will reach 5% later this year and it is more likely than not to remain above the 2% target throughout 2012.’
James Knightley of ING said that markets were expecting an increase in interest rates to come in January 2012, “but following these details they are now anticipating it will be December and sterling has responded positively.”
In response to the Bank of England’s report, the pound increased in strength against the euro with a 1.2 cent rise.
ING has made calls for a rate rise as early as November, “on the basis that inflation will bounce back this year and the recent run of data has been depressed by the extended holiday period in April and could recover again in May/June.
“Furthermore, the labour market is looking in better shape, something that the BoE has alluded to.”
Malcolm Barr at JP Morgan
agrees with this assessment:
“My first take is that the forecasts are a bit more hawkish than I was expecting. They suggest the timing of the first rate rise looks more likely to be this year than next.”