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Bank of England Raises Interest Rates

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7Dnews London

Thu, 02 Aug 2018 15:01 GMT

The pound fell on Thursday despite the Bank of England lifting interest rates from crisis-era lows, after Governor Mark Carney said monetary policy needed to "walk not run" and expressed concern about the risks of a cliff-edge Brexit.

Reuters reported that the move, a rise of 25 basis points to 0.75%, was widely expected, although the unanimous decision of the Bank of England's nine rate-setters was not. The market initially took that unanimity as a more hawkish-than-expected sign. 

But sterling later succumbed to selling pressure and dropped as much as 0.8% to $1.3016, down from around $1.31 before Carney had started his news conference. A stronger dollar added to the pound's struggles. 

The currency also fell against the euro, by 0.4% to as low as 89.25 pence from an earlier flat position. 

Given the lack of certainty about the sort of trading deal Britain can secure with the European Union, and with inflation forecast to fall towards its two percent target over the next three years, Carney reiterated that the bank would raise rates only gradually and to a limited extent. 

"Policy needs to walk -- not run -- to stand still," he said. 

Investors have been betting on there being no further rate rises before Britain leaves the European Union in March, limiting any strength in the pound. 

Sterling has lost almost 10% of its value since hitting a post Brexit-referendum high in April, amid worries that Britain will fail to secure a trade deal before it exits the EU in March 2019. 

London and Brussels, as well as members of Prime Minister Theresa May's government, remain far apart on what the future trading relationship should look like. 


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