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Economists forecast earlier than expected Bank of England rate hikes in 2018

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    Economists forecast earlier than expected Bank of England rate hikes in 2018

    Taken from Mortgage Solutions:

    The Bank of England (BoE) is to lay out its latest forecast for interest rates this Thursday with the conclusion of February’s Monetary Policy Committee (MPC) meeting – and some economists predict the next rate rise could come faster than many people expect.

    In the first inflation report since the Bank’s Base Rate was raised to 0.5% in November, the MPC is to give an updated outlook on the economy, interest rates and inflation – alongside the minutes from the latest rate-setting meeting.

    Inflation is currently running at 3% – well above the MPC’s 2% target, and economic growth for the final three months of 2017 is estimated at 0.5%, from 0.4% in the third quarter of 2017.

    Some economists believe the combination of high inflation and solid economic growth could prompt the MPC to soon raise rates in 2018.

    Paul Hollingsworth from Capital Economics said: “In order to bring inflation back to target within its forecast horizon, there would need to be more tightening than currently implied by markets (even taking into account the rise in market expectations since November’s Inflation Report).

    “And if the MPC wanted to shorten the horizon over which it brought inflation down, to two years, then that tightening would need to come sooner as well.”

    The BoE has already said it expects to increase rates by 0.25% twice in the next two years.

    However, Hollingsworth estimates rates would need to rise three or four times over the next two years to bring inflation to 2% and predicts that the base rate will finish 2018 at 1.25% and 2019 at 1.75%.

    Samuel Tombs, chief economist at Pantheon Macroeconomics, said the surprise growth in the economy is set to bring forward the next rate rise – but believes that Brexit negotiations and uncertainty could still keep hikes on hold.

    He said: “The MPC still needn’t rush to tighten again, but the economy’s unexpected momentum means that we have pulled forward our forecast for the next rate rise to August, from November.

    “We then see two further rate increases coming in February and August 2019, provided that the direction of travel in talks with the EU remains towards a soft Brexit.”

    Andrew Goodwin, lead UK economist at Oxford Economics believes that inflation is set to drop slower than the MPC predicts and evidence that the housing market is sensitive to rate hikes will mean the Bank moves slowly.

    He said: “On balance we see the MPC pressing ahead with its desire to normalise policy but, with inflation slowing more rapidly than they anticipate, they will move in baby steps with only one rate hike – probably in May – coming in 2018.”

    #2
    Carney: Rates could rise sooner than expected

    Taken from the Financial Reporter

    Interest rates could rise sooner and by a greater extent than previously expected, Bank of England governor Mark Carney has announced, forecasts for the UK economy have been upgraded.

    The Bank now expects GDP growth of 1.8% in 2018, up from the 1.6% predicted in November, according to its February Inflation Report.

    Discussing inflation, Carney said: “In order to bring it back to target over a more conventional horizon which means moving it in from that three year horizon that it will be necessary, likely to be necessary, to raise interest rates to a limited degree in a gradual process but somewhat earlier and to a somewhat greater extent than we thought in November.”

    Ben Brettell, senior economist at Hargreaves Lansdown, commented: "The Bank upgraded its forecast for the UK economy slightly today, citing stronger global conditions. It now expects 1.8% growth this year, as against 1.6% forecast in November. Policymakers also said they will try and bring inflation back to their 2% target more quickly than previously, which means rates could rise faster and further than investors had expected. The Bank’s rhetoric echoed that of September’s meeting minutes, which preceded the November rate hike.

    "It now looks like the next rise could happen as soon as May – the next time the Bank’s economic forecasts are due to be updated. Prior to today’s announcement, markets were factoring in a 50% chance of a rate rise in May, and an 80% chance they’ll be higher by the end of the year.

    "On the subject of Brexit, the Bank sounded a note of caution, saying it remained the key source of uncertainty. Future decisions on interest rates will therefore depend heavily on progress in negotiations with the EU."

    Jacob Deppe, head of trading at online trading platform Infinox, added: “In November the expectation was that the interest rate hike was a ‘one and done’ affair. Now it seems we could face two rate hikes this year: one in May and another in the Autumn.

    “Not everyone is convinced two rate hikes is the way to go, expect some market participants to play the other side of this trade.

    “What was perhaps most interesting from the minutes of the Monetary Policy Committee’s meeting was the unanimous agreement that inflation above 2% for the next three years was something it was no longer willing to tolerate.

    “It is perhaps worth questioning whether the MPC feels the need to eradicate inflation now ahead of the Brexit deadline given the dire economic forecasts released overnight.

    “Bank of England governor Mark Carney is probably looking to give the Bank some buffer with interest rates, providing room to cut when Brexit goes through next March.

    “But interest rates will only rise in May if the economic data continues to point to stronger economic growth than previously anticipated. Ultimately, the economy is still very much at the mercy of Brexit, so the Bank won’t be in a rush to act if the data doesn’t support it."

    Comment


      #3
      Only the Tories can bring record low and record high interest rates. Remember the 90's anyone? What are the chances we're about to see the 90's Mk II?
      "Never argue with stupid people, they will drag you down to their level and beat you with experience". Mark Twain

      Comment


        #4
        Originally posted by scooterscot View Post
        Only the Tories can bring record low and record high interest rates. Remember the 90's anyone? What are the chances we're about to see the 90's Mk II?
        Good grief - I hope not. I've heard the horror stories where people were posting their house keys through the letter box of their lender because the monthly mortgage payments were no longer affordable.

        Comment


          #5
          Had someone in the family do exactly that! Naturally they're now very conservative.
          "Never argue with stupid people, they will drag you down to their level and beat you with experience". Mark Twain

          Comment


            #6
            Originally posted by Martin@AS Financial View Post
            Good grief - I hope not. I've heard the horror stories where people were posting their house keys through the letter box of their lender because the monthly mortgage payments were no longer affordable.
            I know someone who did this, thinking it's all good, post the keys and walk away.

            They were hounded to bankruptcy by very nasty debt collection agencies, as the building society sold the house for almost nothing at auction and then sold to the debt the heavies to collect...

            Comment


              #7
              Originally posted by DimPrawn View Post
              I know someone who did this, thinking it's all good, post the keys and walk away.

              They were hounded to bankruptcy by very nasty debt collection agencies, as the building society sold the house for almost nothing at auction and then sold to the debt the heavies to collect...
              Was legislation not enacted that prevented the Building Societies from doing that though? Pretty sure that they have to be reasonable about what they let these properties sell for.
              Would still be a major kick in the nads mind you.
              “The period of the disintegration of the European Union has begun. And the first vessel to have departed is Britain”

              Comment


                #8
                Originally posted by DimPrawn View Post
                I know someone who did this, thinking it's all good, post the keys and walk away.

                They were hounded to bankruptcy by very nasty debt collection agencies, as the building society sold the house for almost nothing at auction and then sold to the debt the heavies to collect...
                And also consider the cost of a set of keys.

                Comment

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