Sterling popped higher after Bank of England policymaker Gertjan Vlieghe said the Bank is most likely to start raising interest rates “well into” next year.
In remarks made at a lecture at the University of Bath, published by the BoE, Vlieghe said the Bank could make a move earlier in 2022 if the economy bounces back faster than expected.
Sterling ticked higher on the comments and by 1310 BST was trading up 0.4% against the dollar and the euro at 1.4178 and 1.1620, respectively.
Vlieghe said: “My central scenario is that the economy evolves similarly to the MPC’s central projection in May, but with somewhat more slack than in the central projection. Relative to the MPC’s central projection, I worry that the transition out of furlough does involve a modest rise in the unemployment rate, while the economy’s supply potential is somewhat less adversely affected, so that there is still some excess supply around the turn of the year.
“In that scenario, the first rise in Bank Rate is likely to become appropriate only well into next year, with some modest further tightening thereafter.
“On the upside, should the transition out of furlough happen more smoothly, with the unemployment rate at or a little below current levels by the end of the year, with associated signs of upward inflation and wage pressure beyond the temporary and base effects, then a somewhat earlier rise in Bank Rate would be appropriate.”