Pound jumps as BoE warns of earlier and larger rate increase


Interest rates kept on hold at 0.5 per cent

Pound was trading 0.8 per cent higher following news from the Bank of England (BoE) that earlier and larger interest rises are likely in the months ahead to damp the effects of a stronger global economy on UK inflation.

Meanwhile, FTSE 100 index fell down 1.1 per cent after the announcement.

In a letter to chancellor Philip Hammond, governor Mark Carney stated that if the bank’s latest forecasts were broadly correct, “monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November report”.

The bank’s rate-setting monetary policy committee (MPC) voted unanimously to keep interest rates on hold at 0.5 per cent— suggesting that the cost of borrowing will not remain this low for much longer.

Economists believe that the next rate rise could come as soon as May. Last year, the BoE had raised the cost of borrowing for the first time in more than 10 years.