Bank of England Governor Mark Carney said in a television interview that the possibility of the first British interest rate rise in 10 years had “definitely increased.”
Carney’s comment came after a similar message from the UK’s central bank earlier on Thursday.
“The majority of members of the (Monetary Policy) Committee, myself included, see that that balancing act is beginning to shift, and that in order to … return inflation to that 2% target in a sustainable manner, there may need to be some adjustment of interest rates in the coming months,” said Carney.
“Now, we will take that decision based on the data.
“I guess that possibility has definitely increased.”
The UK central bank’s monetary policymakers said earlier on Thursday they were likely to raise interest rates in the coming months if the economy and price pressures kept growing.
Its policymakers voted 7-2 to keep rates on hold at a record low of 0.25%.
But the new guidance from the central bank sent the pound to a one-year high against the US dollar as investors priced in a more than 50% chance of a rate rise before the end of the year.
The Bank of England said the economy now looked closer to running at full capacity as employment rose and wages picked up, boosting inflation pressures.
If this continued, most of its policymakers felt “some withdrawal of monetary stimulus was likely to be appropriate over the coming months,” it said.
“I would describe (a rate hike in) November as being live,” said Nomura economist George Buckley.
Yael Selfin, chief economist at KPMG, said: “With the latest unemployment figures suggesting that the UK labour market has reached a simmering point, and the recent jump in inflation meaning it will likely remain well above target for the next few years, you would expect the Bank of England to act.
“But, the meagre wage growth we are seeing in spite of these trends is making it harder for the Bank of England to raise rates, especially as any rise will put yet more pressure on households who are already under strain due to a fall in their real earnings.
“With so much current uncertainty surrounding the EU exit negotiations, the Bank is likely to tread with extra caution.
“Developments in the negotiations over next month are likely to firm up expectations for the course of the exchange rate and for the wider economy over the next year, and will form a crucial factor in influencing the date of the first UK interest rate rise since 2007.”