Bank of England reaction: Sterling rallies on hawk Haldane

Sterling rallied this afternoon after the Bank of England's chief economist Andy Haldane added his vote to pressure to raise interest rates.

The pound recovered most of its losses for the week against the US dollar, hitting highs of $1.3228 in early afternoon trading, having earlier approached $1.31.

City economists' consensus had not expected any change from the seven to two split recorded in May. Haldane's dissent – the first by a chief economist since 2011 – along with confident messages on wages and growth have kept the prospect of an August hike alive.

Read more: Bank of England holds interest rates but Haldane turns hawk in 6-3 vote

Here's how the City's economists reacted.

Hawkish tone

Ruth Gregory, senior UK economist at Capital Economics, said: "While the monetary policy committee stopped short of explicitly committing to a rate hike in August, the hawkish tone of Junes minutes and statement suggest it is pretty likely.

"We doubt that the MPC will sit on its hands for too much longer. Provided that GDP growth rebounds and earnings growth strengthens as we expect, we remain confident in our view that the next rate hike will come in August, with another following in November."

Carney to come

Jeavon Lolay, head of economics and strategy at Lloyds Bank Commercial Bank, said: "No change in interest rates today but a clear message that the likely timing of the next hike is less finely balanced than the markets expected.

"The surprising switch by chief economist Haldane to support an immediate rate hike puts August firmly on the table. There will be even more interest in what governor Carney says tonight at the annual Mansion House speech."

A determined Bank

Silvia DallAngelo, senior economist at Hermes Investment Management, said: "The Bank seems determined to deliver one more hike in the second half of the year, justified by a tight labour market and an economy now working close to potential.

"However, there are several reasons to err on the side of caution. In particular, recent hard data on industrial production and surveys on economic activity suggest that the prospects of a significant rebound in economic performance are uncertain following a weak first quarter."

Data is king

However, Samuel Tombs, chief UK economist at Pantheon Economics, cautioned that weaker data may stand in the Bank's way.

He said: "The MPCs vote and minutes are more hawkish than we had expected and keep alive the chances of an August rate hike.

"Nonetheless, the MPC has repeatedly talked up the chances of rate hikes, only to disappoint when all the data dont fall in to place. We still struggle too see how the data will warrant a hike in August."

Wages the dog that doesn't bark

Brewin Dolphins head of research, Guy Foster, said: "The market is currently reflecting a very shallow trajectory of rate increases.

“Wages continue to be the dog that doesnt bark despite a tight labour market and business surveys describing upward pressure. A welcome improvement in recent productivity would suggest that they can rise without causing inflation.”

Read more: Hawkish hold from Bank of England boosts sterling

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