The British Central Bank is likely to raise interest rates faster than expected three months ago. This was stated by the regulator at their meeting on Thursday. Britain’s 10-year bond yield rose to 1.6%, reaching a 21-month high after the news that interest rates could be increased faster than expected.
The Central Bank of England left interest rates unchanged at a level of 0.5%, according to the analysts’ preliminary attitudes. The bank explained that they are giving more time to consider how the sixth largest economy in the world will deal with the Brexit.
Bank of England Governor Mark Carney said that now he wants to bring inflation back to its target of 2%.
The interest rates in the United Kingdom were raised for the first time in a decade in November, and now the attitude is that the next hike will come faster than expected.
The British economy slowed down after the vote for Brexit in 2016, but eventually did much better than most investors expected at the time of the referendum, mainly thanks to stronger global recovery in countries like the US, Germany and other key partners.
The Bank of England is sticking to its gradual interest rate plan, and before the Thursday meeting, the financial markets expected interest rates to reach 1.2% by the beginning of 2021. This can be achieved by two or three interest rate hikes. This scenario, however, will leave inflation above 2% in three years, which can be judged to increase interest rates with more than the expectations of investors.
In November, the bank alerted the markets to expect two increases over the next three years.
At today’s meeting, the regulator increased its UK economic growth forecast to an average annual growth of 1.75% over the next three years. However, this is below expectations for global growth of nearly 4% over the same period.
The central bank argues its forecast for the slower labor force growth, due to fewer immigrants coming to the UK after Brexit and the aging population of the country. The bank also said they expect the British economy to grow by 1.5% yoy. Annual salary growth is expected to reach 3% at the end of 2018, in line with previous projections. The forecast for inflation is to remain above the target of 2%, namely 2,11% over a three-year period.