THE pound has slipped against the euro and the dollar this afternoon, following the Bank of England announcement that it may need to raise interest rates earlier than expected.
While the central bank held its main interest rate at a record low of 0.25 per cent, it said that it may need to raise rates before the late 2019 date markets had been expecting.
This is because inflation has been rising, and it sees the economy growing steadily over the next few years.
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The sterling/dollar exchange rate fell to a one-week low against the dollar, from $1.292 to $1.287 at the time of writing, while the sterling/euro exchange rate fell from €1.189 to €1.184.
With only a month until the general election, the BoE said the short-term squeeze on households from inflation since June’s Brexit vote would be more severe than it predicted in February.
And economists expect tougher times ahead as Prime Minister Theresa May starts two years of Brexit talks before the country leaves the European Union at the end of March 2019.
The Bank said: “Monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the very gently rising path implied by the market yield curve underlying the May projections.”
This could imply the BoE will raise rates for the first time since 2007 just as Britain leaves the EU
But the BoE said its latest forecasts assumed “that the adjustment to the United Kingdom’s new relationship with the European Union is smooth”.
