BOE signals ‘earlier’ rate hike

The Bank of England left interest rates unchanged at 0.5% yesterday, but said they may need to go up ‘somewhat earlier and by a somewhat greater extent’ than anticipated a couple of months ago. The market promptly priced in a greater chance of a hike relatively soon, probably at the BOE’s May meeting, with (UK) bond yields rising in tandem

Sterling strengthened initially on the BOE’s rate guidance, to intra-day highs of just under 87.5p and just over $1.450 against the euro and the dollar respectively, before losing some ground again amid another big fall in US equity markets

The BOE raised its forecasts for GDP growth in the UK over the next couple of years (to 1.8% in 2018 and 2019) and lowered its projections for the unemployment rate, while inflation is expected to be still above the 2% target at the end of the forecast horizon (hence the need for some further increase in interest rates)

US stocks sold off sharply yesterday, with the losses of around 4% across the three main indices broadly matching the falls that occurred on Monday. Asian stocks were off overnight, not surprisingly ,while European markets have opened weaker this morning

Data due today includes manufacturing output in the UK