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Bank of England signals it may need to raise interest rates ‘earlier’ in spite of Brexit

Interest rates in Britain can be expected to rise “somewhat earlier” according to the Bank of England, preparing households and companies to expect a higher cost of borrowing in the coming years, even as the country prepares to leave the EU.

The bank, which raised interest rates for the first time in a decade in November to 0.5 per cent, kept rates on hold last week, but its Monetary Policy Committee stressed that it sees a need for monetary policy to tighten more rapidly than it did three months ago to contain a “rising degree of excess demand” and incipient domestic inflationary pressures.

Meanwhile, the European Commission raised its growth forecast for the eurozone, citing stronger cyclical momentum in Europe and a better than expected pick-up in global economic activity and trade.

In its Winter Economic Forecast, the Commission said the eurozone will grow by 2.3 per cent in 2018, up from the previous forecast of 2.1 per cent. Likewise, the forecast for next year was upped to two per cent from 1.9 per cent.

Risks to this growth forecast remain broadly balanced, the Commission said. Downside risks were related to an uncertain outcome of the Brexit negotiations and a shift towards protectionist policies.

Finally, the UK housing market’s weakness continued into 2018, according to the latest survey of chartered surveyors by the Royal Institution of Chartered Surveyors (RICS).

The professional real estate accreditation body reported that the net balance for new buyer enquiries in January was -11 per cent, the tenth consecutive month that the reading has been negative.

There was also weakness on the supply side of the market, with new instructions by vendors showing a net balance of -17 per cent, the weakest level since May 2017.

The RICS survey also found that house price balance remained stable at eight per cent in January, while it was forecast to drop to five per cent.

This report was compiled by Bank of Valletta for general information purposes only.

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