Quick reaction: Bank of England eyes interest rate hikes as outlook brightens

No rate changes from Bank of England

In its accompanying quarterly inflation report, the Bank hiked its growth forecasts - to 1.5% this year, up from the paltry 1.2% predicted in February.

The Bank of England signalled that it's in no rush to raise interest rates despite stronger economic growth, as policymakers stayed united on the need to keep borrowing costs on hold for now. But at today's monetary policy press conference, governor Mark Carney said uncertainty was creating divergence in the economy.

"If a Brexit resolution is some form of arrangement with some smooth resolution to it, it will require rate increases, and more frequent rate increases than the market now expects".

The Bank of England signaled that the market is slightly underpricing the outlook for interest-rate increases over the next three years as long as Brexit goes smoothly.

Carney said this appeared primarily to reflect spillover from a softening in policy intentions by the Fed and European Central Bank, rather than a change in the fundamentals of Britain's economy.

In a news conference, Mr Carney said: "If something broadly like this forecast comes to pass.it will require interest rate increases over that period and it will require more, and more frequent interest rate increases, than the market now expects".

The Bank report warned the Brexit delay to October 31 will only prolong the slump in business investment, which has been falling for a year as firms put spending decisions on hold amid uncertainty over a Brexit deal.

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This is due to company's stockpiling for the original European Union withdrawal that was to happen on 29 March. However, it now expects that gross domestic product will increase by 1.5% this year, a slight acceleration from 2018, with growth set to pick up further to 1.6% in 2020 and 2.1% in 2021.

The BoE added that the "subdued pace (of GDP expansion) reflects the impact of the slowdown in global growth and ongoing Brexit uncertainties".

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"Future interest rises will be "limited and gradual", according to the Bank, but not as limited and gradual as the markets are now pricing in", Archer added.

The Bank's rates announcement comes after the Treasury announced last week it had kicked off the hunt to find a replacement for Bank Governor Mark Carney.

Britain's economy has slowed since the Brexit referendum in 2016 but has fared better than many investors feared.

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