BoE's Haldane Says Need To Look Seriously At Raising Rates

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The pound surged past a two-week high against the US dollar Wednesday after Bank of England Governor Mark Carney hinted that some of the Bank's stimulus may be pared back if the British economy were to improve.

Carney continued: "When the MPC last met earlier this month, my view was that given the mixed signals on consumer spending and business investment, it was too early to judge with confidence how large and persistent the slowdown in growth would prove".

He said the strengthening global economy and the United Kingdom competitiveness following the fall in sterling is creating the "possibility of a self-reinforcing revival in investment".

Sterling was almost a cent higher following the data from the Bank of England which also showed a higher than expected number of mortgage approvals in May.

However, since the last vote chief economist Andy Haldane has stunned markets by declaring he will probably vote for a rise later this year.

In a highly technical discussion, Carney says that the Bank would remove accommodation - another way of saying raise interest rates - if business investment held up and consumption did not fall as much as is feared.

Central bank comments were not as supportive for Euro (EUR) exchange rates however. Markets immediately priced in a greater chance of an early rate rise.

Neil Wilson, senior market analyst at ETX Capital, said: "Sterling leapt above 1.29 USA dollar to its strongest in three weeks after a surprising intervention from Bank of England governor Mark Carney, while continued dollar softness offered further support".

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He also used the speech to stress that the MPC's tolerance was limited when it came to inflation sitting above the Bank's 2% target.

"If companies want to expand they're going need to invest", says Carney.

Jones suggested three guiding principles for the market, covering lending responsibly and safely, focusing on the customer, with transparent outcomes and providing high levels of support to dealers and customers, with a particular focus on education.

With US economic data having disappointed in recent months and Trump's administration still battling to push legislation through Congress to introduce the President's policy changes, the US Dollar's recent strength has largely been driven by the Fed's plans to accelerate the pace of interest rate hikes this year.

Sterling jumped by 1% to 1.29 versus the USA dollar on the news, with Mr Carney's comments proving more hawkish compared to his Mansion House speech last week when he said "now is not yet the time to begin that adjustment".

This week has seen GBP USD climb from 1.2715 to around 1.2830 - its best level in over two weeks. United Kingdom rates are unlikely to rise in August, when the MPC next meets, but an increase before year-end is a distinct possibility.