Carney Looks to Start Interest Rate Raising Cycle Sooner than Later

The centrality of interest rate rises to forex markets remains critical; those countries that raise interest rates in 2015-2016 will continue to see their currencies appreciate.

At the present time the Bank of England and US Federal Reserve are the two stand-out names about to enter a tightening cycle.

However, recent declines in UK gilt yields and the British pound would suggest markets are betting the Bank of England is intent on delaying these rate rises.

A recent speech delivered by Bank of England Governor Mark Carney is, in our eyes, confirmation that this speculation represents a misreading of the outlook.

In a speech to the University of Sheffield Advanced Manufacturing Research Centre the Governor all but confirmed interest rates must start rising soon.

Carney said there is a risk that the combination of persistently low global inflation and the strength of sterling could weigh on prices here for some time.

However, one portion of his speech is undoubtedly bullish for sterling:

“Despite these headwinds, a solid UK expansion, underpinned by strong domestic demand growth, leaves us on track to return inflation to target within the next two years. To deliver that outcome, a gently rising path for Bank Rate is likely to be required over the next few years.”

For rates to ‘gently rise’ we read a need for the process to get started sooner than later.

By delaying the process too long – say starting in mid-2016 as many in the market are pricing – the risks of having to chase quickening inflation with destabilising large rate hikes grows exponentially.

This would be the number one scenario the Bank of England would seek to avoid.

British Workforce Structurally Different

Meanwhile, fresh research from the Bank of England confirms the structure of the British workforce continues to change in a fundamental manner.

A new report from the Bank of England confirms a boom in self-employment, reflecting “a structural change to the economy and adds to the mounting evidence that the rise in self-employment is the continuation of a long term shift in the labour market,” comments Simon McVicker, Director of Policy and External Affairs at IPSE.

McVicker used the report to take a fresh dig at the Labour Party who are seen by many as being fundamentally opposed to this shift in the labour market:

“With the report categorically stating that the increase in those working for themselves has not happened out of economic necessity, it is hoped the report will sway those, most notably the Labour Party, still clinging to the belief that the rise of self-employment represents increased insecurity in the labour market.”

According to IPSE, the report supports the findings of our own research that has repeatedly shown the UK’s 4.6 million independent professionals to be masters of their own destiny rather than becoming their own boss out of enforced or hidden unemployment.

“The self-employed now constitute almost 15% of the workforce and have been the catalyst for economic growth and recovery in the UK and it is high time they are celebrated for this fact,” says McVicker.