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The Bank of England hinted at the necessity of earlier and potentially bigger interest rate hikes than priorly estimated, girding the markets for higher borrowing costs.
In its first policy meeting of the year, BoE's Monetary Policy Committee concluded that if the economy would develop broadly in accordance with its expectations, monetary policy would need to be tightened at a somewhat more aggressive and greater extend over the projected period than estimated during the last report in November.
MPC members voted unanimously to keep interest rates on hold at 0.5 percent. In November, BoE raised the cost of borrowing for the first time in over 10 years, from 0.25 percent to 0.5 percent. During that period, the Bank indicated there could be two more rate hikes of 0.25 percentage points in the next three years.
But now there is a possibility of a third rate hike and those increases could be sooner than anticipated.
Sterling surged against dollar on the report as higher borrowing rates in an economy traditionally favor the domestic currency with the anticipation of an inflow of business investment. The pound rose above 1.400 versus the U.S. dollar after trading near 1.388 ahead of the announcements.
Economists are predicting the next interest rate could come as early as May.
