The Bank of England has suggested it could raise UK interest rates earlier than markets previously thought, write Jason Douglas and Paul Hannon for The Wall Street Journal.
At the bank’s August policy meeting, members of the Monetary Policy Committee decided to keep the country’s benchmark borrowing rate at 0.25%. But officials said this may need to rise quicker than expected to help manage inflation.
Short-term interest rates in financial markets suggest investors had been expecting two rates rises in the next three years, with the first of these, to 0.5%, coming late in 2018.
The Bank of England said: “If the economy were to follow a path broadly consistent with the August central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied.”
The pound dropped 0.5% to $1.3161 on the news, while gilt yields fell.
It means the Bank of England joins other big central banks in preparing for the end of the post-crisis era of easy money.
In the US, the Federal Reserve is on course to raise short-term rates later this year, while the European Central Bank is to begin phasing out its huge bond-buying programme in 2018.