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Bank of England Official states market rate expectations could be wrong

The Bank of England’s Deputy Governor has pushed back against expectations that interest rates will rise in 2017, warning that the path implied by markets could be misleading.

The Bank of England’s Deputy Governor has pushed back against expectations that interest rates will rise in 2017, warning that the path implied by markets could be misleading [1].

Deputy Governor for monetary policy, Ben Broadbent, encouraged investors not to “focus obsessively” on the Bank’s inflation forecasts [1].

Broadbent said markets appeared to press expectations for the timing of rate hikes far further back than economists at times of risk aversion. For example, now there are mounting concerns about the global economy, urging investors to seek protection against a slump [2].

Keeping inflation at the Bank’s 2% target was not the only consideration for the Monetary Policy Committee, which sets interest rates, and that “trade offs” were required to ensure the Bank steered inflation back to target without harming the recovery, Broadbent stressed [1].

Bets on a later rate rise grew after Bank of England forecasts published earlier this month showed inflation would barely rise above its 2% target in two years’ time, even if rates stayed unchanged into 2017 [2].

The Bank’s forecasts should not be “treated as an unconditional promise,” Broadbent said [1].

Business surveys measuring private-sector growth had, in the past, offered a better guide to how rate-setters would vote over the following three months, he continued [2].

[1] The Telegraph “BoE Official says bets on 2017 rate rise could be wrong” telegraph.co.uk

[2] Reuters “Bank of England’s Broadbent says market rate bets can mislead” uk.reuters.com