The Bank of England (BOE) has signaled the need for interest rate rises earlier and potentially larger than previously predicted, preparing markets for impending higher borrowing costs.
In its first meeting of 2018, the Bank's Monetary Policy Committee (MPC) judged that, were the economy to move broadly in line with its projections, "monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period," than anticipated during its last report in November. This would be required to "return inflation sustainably" to its target and over a "more conventional horizon," the report said.
Sterling spiked against the dollar on the news as higher rates in an economy tend to favor the local currency with the anticipation of more investment. The pound broke above 1.400 against the greenback after trading close to 1.388 before the announcements.
At the same time as the inflation report, the Bank voted unanimously to keep interest rates unchanged on Thursday.
The rate decision and hawkish comments come on the back of significantly improved global growth, a modest improvement to the U.K.'s growth outlook and increasing domestic cost pressures as wages look to rise.