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The pound has hit a five-week high after Bank of England hints on rate rise

Sterling reached a five-week high against the dollar on Thursday (Yahoo Finance UK)
Sterling reached a five-week high against the dollar on Thursday (Yahoo Finance UK)

Sterling rose above $1.30 for the first time in five weeks on Thursday, as the Bank of England took a hawkish shift on monetary policy, hinting that interest rates were likely to rise soon.

After Prime Minister Theresa May’s botched election gamble saw it lose more than 2 per cent against the dollar, the pound has recovered as Bank officials tasked with monetary policy leaned toward raising record low UK interest rates.

MORE: Sterling tumbles to seven-month low as euro enjoys renewed strength

At a conference on Wednesday, the Bank’s governor Mark Carney said that a rise in rates was likely to be needed as the economy comes closer to running at full capacity.

“These are some of the issues that the MPC (Monetary Policy Committee) will debate in the coming months,” he said during a speech at the European Central Bank conference in Sintra, Portugal. “Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional.”

The comments are in contrast to those made last week, when Carney said now was not the time to raise interest rates, while his chief economist Andy Haldane flipped to support a hike later this year.

The pound briefly reached over $1.30 on Thursday (Yahoo Finance UK)
The pound briefly reached over $1.30 on Thursday (Yahoo Finance UK)

Sterling strengthened to $1.2995 in early European trade, briefly rising as high as $1.3007 after Haldane told the BBC the bank needed to look seriously at raising rates.

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Haldane said to the BBC: “We need to look seriously at the possibility of raising interest rates to keep the lid on those cost of living increases.

“For now we are happy with where the rates are, we need to be vigilant for what happens next”.

The pound was 0.2 per cent higher at 87.82 pence per euro, after falling to a seven-month low on Wednesday following renewed strength to the single currency.

“It’s a clear push higher (for sterling) on a combination of the Bank of England looking a bit more hawkish than it was letting on and the Federal Reserve seeming to be quite content with their position (to raise interest rates),” said CMC Markets analyst David Madden.

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“The Conservative Party have formed a minority government…that also adds to the overall political and financial stability of the UK because a lot of sterling’s woes in the last month or so has come on the back of the general election.”

However, regarding political uncertainty there is still shaky ground for investors, Northern Irish politicians given until 4pm on Thursday to reach an agreement to restore devolved power-sharing government in the region.