Yesterday Bank of England Governor Mark Carney made a speech at the International Monetary Fund’s headquarters in Washington. Reiterating the central bank’s new view that interest rates are likely to rise in the coming months. The UK’s inflation has accelerated this year, largely due to the fall in the value of the pound since the referendum decision in June 2016 to leave the European Union. The jump in prices to nearly 3 percent - above the BoE’s 2 percent target has squeezed the spending power of many households and has slowed growth in the UK economy. Carney stated the years of rock-bottom interest rates appeared to be coming to an end as the world economy picked up after the global financial crisis.
Following a more hawkish tone from the BoE, two of Britain’s “Big Four” banks have forecast higher UK interest rates over the coming year, following the Bank of England’s warning last week that rates were likely to rise “in coming months”. Both now expected the central bank to raise rates by 25 basis points in November and by a similar amount in May 2018, having previously seen rates staying at their record lows until the end of 2018.
The Euro edged higher on Monday after Eurozone inflation climbed to a four-month high in August, in line with expectations. Consumer prices rose 1.5 percent year-on-year in August, faster than the 1.3 percent increase seen in July. However inflation continues to stay well below the European Central Bank's target of 2%. Excluding the volatile components of unprocessed food and energy, an indicator closely watched by the ECB for its monetary decisions, the rate was 1.3 percent on the year. Prices in the services sector, the largest in the euro zone economy, were 1.6 percent higher in August on the year the same rate as in June and July.