The British pound leaped on Tuesday against the dollar after Bank of England Governor Mark Carney mentioned that the time for a first Bank of England interest rate hike was getting closer as economic recovery gathers momentum. This would be the first hike since the financial crisis in 2008 when rates were a record lows of 0.50 percent have stayed there since then.
“The point at which interest rates may begin to rise is moving closer with the performance of the economy, consistent growth above trend, a firming in domestic costs, counter-balanced somewhat by disinflation imported from abroad,” Carney told a parliamentary committee.
Carney said households should start to prepare for higher borrowing costs, though the BoE would only raise rates gradually. Markets reacted to his comments by pushing up the pound and selling government bonds.
Sterling jumped by more than a cent against the dollar and UK gilt futures fell nearly 30 ticks from their level before Carney’s comments.
In early Wednesday trading, GBP/USD reached as high as 1.5668.
Meanwhile, another rate-setter at the Bank of England, David Miles, said the first rise in borrowing costs “clearly is coming” and it was “not a bad thing”. Miles has been one of the Bank’s nine MPC members who has voted most consistently to support the British conomy with low interest rates and additional stimulus.
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