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BoE ready for more rate hikes in 2018

Thursday, Dec 28 2017
BoE ready for more rate hikes in 2018

There were no data releases from the UK today, with focus being on domestic monetary developments. The Bank of England (BoE) announced its first rate hike in more than a decade in November, amid strong inflationary pressures and a low level of unemployment. At the time, it also signaled its intention to gradually tighten its monetary policy over the coming years. Thus, markets have priced another rate hike in for next year, but some believe there could be two interest rate increases in 2018. One key factor for the central bank is Brexit. At the moment, the U.K.'s decision to leave the EU has mainly led to a depreciation of the pound.

However, given that negotiations are likely to continue throughout 2018, that in the short-term Brexit won't trigger economic uncertainty and thus the BoE will be able to focus on the economy, which is performing well compared to previous pre-Brexit-vote scenarios. Some think that Brexit needs to be monitored. The recent move higher in gilt yields has been driven by the seemingly increased likelihood of a Brexit transition deal, which would make it easier for the BoE to follow through their rate hiking forecast, especially if it leads to a pick-up in U.K. growth.

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