Bank of England still faces growth-inflation trade-off - Carney

Inflation ‘at 5-year high amid fuel rise’			
				 
   by Kalyeena Makortoff 
  Published

The Bank of England's MPC is expected to sanction a quarter-point rise in Bank Rate during its meeting on 2 November.

Many economists still remained confident that Carney and co would still hike rates at their coming meeting.

"Inflation rising potentially above the 3 percent level in coming months is something that we have anticipated", Carney told lawmakers in Britain's parliament, saying the BoE had said before last year's Brexit vote that a fall in sterling would push up prices.

A reversal in the Bank's post-Brexit-vote, quarter percentage point cut in base rate looks nearly certain in November, particularly after news today that the consumer price index (CPI) rose at an annual rate of 3% in September.

"Not raising rates now, having led the markets up the garden path on several occasions over the years would be as equally damaging to the banks credibility".

"Mark Carney must recognise the wolves are now at the door and take action to strengthen the pound even though this may increase mortgage costs".

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However, Laith Khalaf, senior analyst at Hargreaves Lansdown, pointed out a rate increase is not a dead cert: "It is important to keep some perspective, and while consumers may be constrained, they are not down and out".

He said the cut in interest rates implemented immediately after the European Union referendum result was the right thing to do to secure economic growth, but that the "trade off" between protecting against higher inflation and securing economic growth has changed, to the point where a rate rise would be unlikely to hamper growth, but could ease inflationary pressure.

On the other hand, figures have shown that unemployment claims fell by more than a month last week, as the storm of storms in Texas and Florida continued to slow down Harvey and Irma hurricanes. In the face of high inflation we are still seeing little wage growth so the pressure is continuing to grow on United Kingdom households.

"There has been much talk of a rate hike later this year by the Bank of England, but with so many areas of weakness in the economy, and high levels of indebtedness, a rate rise could be a step too far for the Bank of England, at least until there is more clarity on Brexit".

At 13:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bearish at -166.905, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 47.8029. That suggests investors are now less certain of a November rate hike.

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