Bank of England moves to head off pre-crisis signals

Bank of England moves to head off pre-crisis signals

Sterling rose to $1.2936 against the dollar after Mark Carney said that "some removal of monetary stimulus is likely to become necessary". While any increase in interest rates will be small and mortgage rates would still be at historically very low levels, the fact that it would be the first rise in interest rates since mid-2007 could have a significant effect on housing market psychology.

The increase to 0.5% will raise regulatory buffers of common equity Tier 1 capital (the highest quality capital) by £5.7 billion, according to the FPC.

"As the United Kingdom moves into a more standard risk environment and embarks on the Brexit process with its attendant tail risks, the FPC is committed to ensure that the system continues to have sufficient resilience to withstand potential shocks".

The pound rose to its highest level since Britain's June 8 election after the BoE released Carney's remarks.

"It is a sensible way for the bank to try to take some of the steam out of the consumer debt growth without immediately impacting the nominal rates paid by mortgage borrowers", said Gregory Turnbull Schwartz, an investment manager at Baillie Gifford & Co.in Edinburgh.

Carney said he was anxious investors aren't doing enough to assess climate risk and the recommendations from a taskforce of industry experts encourages companies to include scenarios in their financial reports showing how they could be affected by climate change in the longer term.

It has also made it harder for them to lend money, withdrawing an emergency post-Brexit referendum measure created to make getting credit easier. "Lenders may be placing undue weight on the recent performance of loans in benign conditions".

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This in turn puts pressure on the BoE to raise its main interest rate from a record-low 0.25 percent.

Earlier this month a divergence on interest rate policy was highlighted in the monetary policy committee, when three of the eight members voted for a rise in rates to 0.5 per cent due to soaring inflation.

With economic growth slowing at the start of this year, plus inflation rising while wages growth stutters, there had appeared to be little chance of a hike in rates any time soon.

Carney said the FPC's action did not in itself imply that monetary policy was also about to tighten.

Meanwhile, BoE Deputy Governor Jon Cunliffe said that the time was not right for a rate hike as it was better to wait-and-watch how inflation evolves.

ING economist James Knightley said that while Carney's comments did not suggest a rate rise was a "done deal", the MPC's August meeting was now "in play for a rate rise".

Support for the pair falls at the broken 1.2875 resistance level.

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