The Bank of England says it may need to raise interest rates before the late 2019 date that markets had been expecting, assuming Britain can leave the European Union smoothly in two years' time. As David Pollard reports, sterling actually fell despite the warning as traders reacted to the latest policy announcement.
It's a warning - but not a strong enough one yet for markets to put their money on rate hikes any time soon. Sterling actually falling after this statement. (SOUNDBITE) (English) BANK OF ENGLAND GOVERNOR, MARK CARNEY, SAYING: "Monetary policy could need to be tightened by a somewhat greater extent over the forecast horizon than the very gently rising path implied by the market yield curve at the time of the forecast." In other words, a market bet that rates might go up in late 2019 might be a bit too late. In the near-term, though, any changes to policy are unlikely. Only one rates-setter voted for a hike - more had been expected by some in the markets. And monetary stimulus isn't excessive, but appropriate, Carney said. Despite the squeeze from above-target inflation. (SOUNDBITE) (English) BANK OF ENGLAND GOVERNOR, MARK CARNEY, SAYING: "This is going to be a more challenging time for British households over the course of this year. Real income growth to use our terminology will be negative." But Carney adding that wage growth will accelerate - as inflation eases off. Though some economists see in that more hope than confidence. (SOUNDBITE) (English) FIDELITY INTERNATIONAL, INVESTMENT DIRECTOR, TOM STEVENSON, SAYING: "Expectations now are that inflation could rise to 3.4, maybe 3.5 per cent .... Household earnings probably expected to rise by maybe 2.7 per cent, so the gap between the two represents an effective pay cut for UK families, and the largest pay cut, actually, for the last three years." The Bank trimmed its growth outlook this year to 1.9 per cent - though raised it for the two years after. Inflation will peak at 2.8 per cent for 2017. Those forecasts assuming a smooth Brexit. The one thing many economists say the Bank can't bet on.