Bank of England leaves interest rates unchanged

The U.S. Federal Reserve is widely expected to begin raising interest rates for the first time in almost a decade when it meets next week.

The wagers on the Treasury futures have implied that there is an 80% chance of the Fed announcing rate hikes on the 16th of December. The central bank’s monetary policy board voted Thursday to freeze the base rate at 1.5 percent.

“Less favourable financial market conditions, together with a weaker outlook for the global economy and increased sensitivity to U.S. interest rates, heighten the risk of negative spillovers” into emerging economies once the United States does decide to raise interest rates, said the BIS.

The Bank signalled in its quarterly inflation report last month that an interest rate rise in the United Kingdom may still not come for another year.

This month’s meeting of the Bank’s nine-strong Monetary Policy Committee (MPC) comes at a time when the economy still faces some challenges. It is important to state that consumer spending is a closely watched gauge as it provides an indication on the economic growth trajectory in the coming quarters.

Meanwhile, a pick-up in Britain’s dominant services industry in November pointed to a recovery in overall economic growth in the final months of 2015 after a dip in the third quarter, and could start to heat up inflation before long.

Turkey needs a “more orthodox” and predictable monetary policy, the country’s newly appointed economy czar said yesterday, throwing his weight behind a central bank drive to simplify its intricate system of multiple rates.

Returning inflation to target “depends on an increase in domestic cost growth sufficient to balance the drag on prices from very subdued global inflation and past increases in the value of sterling”, the minutes said.

But for one member – Ian McCafferty – the risk of overshooting the Bank’s 2% inflation target in two years’ time was enough to see him call once again for rates to rise to 0.75%.

The BOE is expected to leave its benchmark interest rate at 0.5% and maintain its quantitative-easing program at 375 billion pounds ($568 billion).

In 2013, suggestions by the Fed that it might raise interest rates triggered an outflow of capital from emerging markets across the globe.

We have reported that ING are forecasting the pound to tick higher in 2016 as they expect the Bank to ultimately start ignoring the currency’s role in holding back inflation.

Commenting on the recent decline in open interest, CME said, “When the fed fund futures price implied rate moves that are in line with FOMC guidance and market participants’ views, some participants may close out their positions”.

A USA rate hike has become a near certainty as the US economy delivered another month of solid job growth in November.