In a speech on Wednesday, Bank of England Chief Economist Haldane looked at the arguments both for holding monetary policy and moving towards an early increase in interest rates. Haldane concluded that the risks of tightening policy too early had receded as growth and inflation have shown greater resilience than expected. If the bank waits too long before raising rates, this could also result in a much larger rate hikes later on, contrary to MPC intent.

Overall, Haldane concluded that a partial withdrawal of the additional policy insurance put in place last year would be prudent relatively soon provided that forthcoming data comes in broadly as expected. In other words, he will look for an increase in interest rates of 0.25% to 0.50% before the end of 2017.

Sterling had been undermined on Tuesday by comments from Bank Governor Carney that now was not the right time to raise interest rates.

There will be a high degree of uncertainty surrounding the situation, especially as there are clearly splits within the Monetary Policy Committee (MPC). There will need to be at least five votes in favour on the MPC for rates to be increased and there will be resistance among the dovish members.  This could give new member Tenreyro a pivotal vote on the committee if Carney resists a rate increase.

Sterling did gain renewed support following the comments with GBP/USD edging towards 1.2700 from 1.2645. There will be further high volatility in the short term and given the potential for sharp moves it remains prudent to wait for better levels for both selling and buying Sterling.

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