After the European Central Bank kept alive the prospect of printing money and the U.S. economy enjoyed a bumper month of jobs hiring prompting some to bring forward their expectations for a first U.S. interest rate rise, the Bank of England holds a monthly policy meeting.
There is no chance of a rate rise this time but the UK looks increasingly nailed on to be the first major economy to tighten policy, with the ECB heading in the opposite direction and the U.S. Federal Reserve still unlikely to shift until well into next year. Minutes of the Fed’s last meeting, released yesterday, showed general agreement that its QE programme would end in October but gave little sign that rates will rise before the middle of 2015.
The British economy is growing fast and its housing market has been running red hot – prices in London have shot up nearly 26 percent from a year ago – though the BoE says rate rises are not the first tool to deal with that. Britain’s closely-watched RICS housing survey, released overnight, showed signs that some of the heat is starting to come out with its house price balance easing back.
However, Minouche Shafik, who will join the nine-strong group of rate setters next month, said yesterday the Bank was likely to lower its estimate of spare capacity in the British economy. That means incipient inflationary pressure could start to build and indicated that the time to raise interest rates may be approaching.
A Reuters poll of more than 60 economists produced a consensus that UK rates will rise for the first time in the first quarter of next year. But it attached a growing, 40 percent chance to a hike before year-end. Only last year, the Bank was predicting no move until 2016.