Stronger than expected growth numbers have fuelled expectations that another rise in interest rates is on the way, with City traders now seeing a May rise from the Bank of England as an even-money bet.
The economy expanded by 0.5% in the final quarter of 2017, according to official figures last week, faster than economists had forecast.
“The news will be an upside surprise to the Bank of England, too,” said HSBC economist Elizabeth Martins. Along with increasing numbers of people in work, the figures “support our view that the Monetary Policy Committee will raise Bank rate again in May,” she added.
Futures markets now imply a 50% probability that rates will climb to 0.75% in May, rising to an 80% chance of an increase by November. The Bank raised rates from 0.25% to 0.5% in November last year in an attempt to tackle above-target inflation, the first increase in more than a decade.
In Davos last week, Bank governor Mark Carney said the pace of any future rate rises will depend heavily on the direction of Brexit negotiations.
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Credit: The Sunday Times