Bank of England eyes rate rise as inflation surges

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       Carney rate rise possibility 'increased'

Video Carney rate rise possibility 'increased'

The Bank of England said it was likely to raise interest rates in coming months if the economy and price pressures kept growing, flagging Britain´s first rate hike in a decade.

The Bank of England has said that higher inflation and a pick up in growth could lead to a rate hike in "the coming months".

If Fed officials indicate that the inflation data was impressive and believe inflationary pressure will be strong enough to support tighter USA monetary policy, Fed rate hike bets will continue to rise and USD/GBP will weaken.

"Such increases do leave the door open for the Bank of England to hike interest rates, but that is unlikely with the current sluggish growth in the United Kingdom".

In August the MPC forecast two rate hikes over the next three years, with the first not until the third quarter of 2018.

Members of the Bank's nine-strong Monetary Policy Committee voted 7-2 to keep interest rates on hold at 0.25%, as widely expected.

The second is that the majority of BOE members see scope for some reduction in stimulus in the coming months "if the economy continues to follow a path consistent with the prospect of continued erosion of slack and a gradual rise in underlying inflationary pressure".

Economists expect it to have risen to 2.8% in August, way above the BoE's 2% target, strengthening the case for a rise in official borrowing rates next year.

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"Domestically-generated inflation is subdued, inflation expectations have remained well-anchored and GDP growth is too weak to warrant higher rates", he said.

Vlieghe was the first MPC member to vote for a rate cut after the June 2016 Brexit vote, something the BoE did in August past year.

In the afternoon of Thursday's European session the GBP/AUD exchange rate was trending around 1.29% higher at 1.6759, while the GBP/NZD exchange rate resided at around 1.8556, a massive 1.89% higher.

Since the August Inflation Report, data suggested slightly stronger picture than anticipated, the bank noted. Today, the central bank voted 7-2 in favor keeping interest rates at 25 basis points.

Consumer prices overall increased by 2.9pc compared with a year earlier, the Office for National Statistics said, up from 2.6pc in July and above the median forecast in a Reuters poll of economists for a rise of 2.8pc.

However sterling hit a year-high against the dollar in the wake of Tuesday's data, as traders bet on the timing of rate tightening from the Bank of England.

The MPC said: "During the negotiation period, those economic implications would be influenced significantly by the expectations of households, firms and financial markets".

The BoE's policymakers are widely expected to leave rates at a record low 0.25 percent when they make their latest policy statement at 11:00 GMT.

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