BoE Expected To Hold The Line, But Expectations Rise For A Rate Hike

The Bank of England will be holding its first monetary policy meeting of the year this week. The markets expect no changes to interest rates which remain at 0.50%. The Bank of England hiked interest rates for the first time in a decade in November 2017.

This came as the central bank hiked rates to contain inflation which overshot the BoE’s 2% inflation target rate and remains stubbornly above this level. Recent data, however, indicates that inflation might have peaked at 3.1% as consumer prices rose just 3.0% in December, a month after the BoE hiked interest rates.

Despite the rate hike, wage growth continues to remain a concern for the BoE. However, according to some central bank officials wages are expected to rise this year.

BoE Governor quizzed by lawmakers

Last week, the Bank of England Governor, Mark Carney was quizzed by British lawmakers. Carney, known to be pessimistic on the outcome of the Brexit decision, justified his views to lawmakers.

In his testimony, Carney told lawmakers that the inflationary effects were due to the steep fall in the exchange rate of the British pound following the Brexit vote in 2016. He was, however, reassuring of the fact that the bulk of the effect had already passed.

Carney was optimistic about wages, as he said that there could be a rebound in the wage growth this year, following a lengthy squeeze largely due to the strong rise in consumer prices.

“There is a prospect of a return to real income growth rate later this year,” Carney told lawmakers.

BoE monetary policy decisions tied to Brexit talks

A few weeks ago, Mark Carney was speaking at the World Economic Forum in Davos. In his speech, the Bank of England Governor said that the path of interest rate hikes in the UK would be closely tied to the Brexit talks and the negotiations with the EU.

Carney, known to be pessimistic on Brexit said that the UK’s ability to grow and the future direction of the exchange rate depended largely on the trade talks between the UK and the EU.