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One of the key rate-setters on the Bank of England’s Monetary Policy Committee has today said UK households should be primed for an interest rate rise “significantly sooner” than first thought.

Michael Saunders, the former Citigroup economist turned Threadneedle St wonk, noted that financial markets had already priced in a pending rate rise as economies look to dampen inflation.

Saunders told the Sunday Telegraph: “I’m not in favour of using code words or stating our intentions in advance of the meeting too precisely, the decisions get taken at the proper time. But markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that’s appropriate.”.

It’s a fresh sign that the Bank of England may be the first major central bank to raise rates as the world emerges from the Covid-19 pandemic.

Last month the nine-member Monetary Policy Committee voted unanimously to keep rates at the record low of 0.1 per cent.

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But Saunders and Deputy Governor Dave Ramsden voted to halt the BoE’s government bond purchases ahead of schedule.

Saunders said markets had fully priced in a February rate hike by the British central bank and had half priced in a December increase in borrowing costs.

“I’m not trying to give a commentary on exactly which one, but I think it is appropriate that the markets have moved to pricing a significantly earlier path of tightening than they did previously,” he said.

The comments by Saunders came shortly after Bank of England Governor Andrew Bailey said inflation running above the central bank’s two per cent target was concerning and had to be managed to prevent it from becoming permanently embedded.

By Josh Martin

Source: Commercial Finance Network

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