“It could happen sooner than markets currently expect.”
That was the bomb of a headline Bank of England Mark Carney dropped in a speech on Thursday that suggested a significant change in tone at the bank.
So far, Carney has seemed comfortable with keeping rates at a record low of 0.5 percent for another year. That has been the forward guidance markets have been following.
But are many now convinced that Bank Rate will go up earlier?
Not yet, but some.
Given that Carney’s remarks come only a month after he outlined a dovish outlook for rates in the May Inflation Report, he took many by surprise, sending sterling to just under $1.70 and rallying to less than 80 pence per euro.
A 10 percent rise in sterling over the past year has already been doing some of Carney’s tightening for him.
And short sterling interest rate futures are now pricing in a 25 basis point rate rise by December.