Bank of England rate-setters sent the pound surging today as they struck a bullish note on the recovery and hiked growth forecasts.
Sterling moved close to $1.60 against the dollar as minutes of the latest monetary policy committee meeting revealed the Bank’s economists predict a 0.7% advance in the current quarter following a run of strong data — up from 0.5% just a month ago.
The minutes also showed the MPC, chaired by Mark Carney, pictured, backing away from a further boost for the economy as the recovery takes hold with no members judging extra stimulus was “appropriate at present”. This contrasts with month earlier when some rate-setters believed there was a “compelling case” to do more. In June, three members — Paul Fisher, David Miles and former Governor Lord Mervyn King — were voting for more money-printing.
Markit chief economist Chris Williamson said: “The minutes showed waning support for more stimulus... the UK economy has moved up a gear in recent months, buoyed by numerous factors, including a revival in its main trading partner, the eurozone.
The single currency area saw its economy pull out of recession in the second quarter, with GDP expanding 0.3%. Meanwhile, at home consumer confidence has risen to post-crisis highs, fuelled at least in part by a housing market upturn, and business is showing signs of booming.”
The Bank’s growth upgrade brings it broadly into line with City forecasters but more positive recent survey evidence suggests the economy’s pace could even come close to 1% in the current quarter.
Concerns have risen over the role of the housing market in fuelling the recovery, although the minutes showed rate-setters would only provoke serious worries “if a period of rapid real house price increases appeared in prospect”.
Markets are currently betting the Bank will raise rates earlier than planned under its new forward guidance regime. The MPC will consider hikes if unemployment — currently 7.7% — reaches 7%. UK short-term borrowing costs have risen alongside US yields as the good news rolls in, but HSBC economist Simon Wells said the MPC appeared comfortable with this. “There was no mention of recent market rate rises being ‘unwarranted’, he said. But the minutes showed that rate-setters were keen to stress the 7% level was a threshold for considering further action rather than a definite trigger for rate rises.