Bank of England Turns Hawkish on Rates

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03/16/2017 | 01:25 pm


By Jason Douglas and Wiktor Szary



LONDON--The Bank of England held its benchmark interest rate steady Thursday but signaled that an increase may not be far off, with one official dissenting in favor of higher borrowing costs and others saying it might not be long before they do the same.



The BOE kept its main interest rate at 0.25% following officials' March policy meeting, saying that uncertainty surrounding Britain's prospects as it prepares for exit talks with the European Union justified keeping policy on hold even as a falling pound fuels faster inflation.



Sterling rose slightly following the announcement.



Yet minutes of officials' deliberations revealed signs of growing unease at the BOE's easy-money stance. One rate-setter on the nine-member Monetary Policy Committee, Kristin Forbes, voted for an immediate increase in the BOE's benchmark rate to 0.5%, saying tighter policy was needed to keep inflation in check.



Others indicated that they might not be far behind, provided the economy held up. "Some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted," the minutes record.



The unexpectedly hawkish signal on interest rates from the BOE comes as Prime Minister Theresa May prepares to kick off divorce talks with the EU that are scheduled to last two years.



Central-bank officials led by Gov. Mark Carney cut the BOE's main policy rate to a new low of 0.25% and revived a crisis-era bond-buying program two months after voters chose to leave the EU in a referendum in June.



But they were subsequently wrong-footed by the resilience of the British economy, and in recent months Mr. Carney has warned that there are limits to how pronounced an overshoot of their 2% inflation goal officials are willing to tolerate. Annual inflation accelerated to 1.8% in January and is expected to rise above 2% within months.



Write to Jason Douglas at [email protected] and Wiktor Szary at [email protected]





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