The Latest: Pound rises further on UK rates outlook

The Latest on the Bank of England's interest rate decision (all times local):

2:10 p.m.

The pound has pushed above the $1.40 level as traders price in a growing likelihood of another interest rate increase in May from the Bank of England.

The anticipated quarter-point rate hike, which would take the benchmark rate to 0.75 percent, came after the bank turned more confident about the British economy's near-term growth prospects. It said interest rate rises were likely to come sooner than it anticipated just three months ago.

ING economist James Smith said the bank "caught markets off-guard with its surprisingly bullish outlook for the economy and interest rates."

However, others thing the bank may be too optimistic.

Abi Oladimeji, chief investment offficer at Thomas Miller Investment, says global growth is likely to moderate and inflation will ease. The Bank of England, he says, is "likely to change its tune."

The pound was 1.1 percent higher at $1.4033.

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1:50 p.m.

Bank of England Governor Mark Carney says a failure by the British government to agree on a transition deal with the European Union over the coming month or two could affect future interest rate decisions.

Carney said the bank's economic projections depend on a "smooth transition to potential outcomes."

The British government has said it hopes to wrap up the outlines of a transition deal by the end of March that will see Britain remain in the tariff-free European single market and customs union for a period after Brexit day in March 2019.

Carney has said on numerous occasions that it would be beneficial for the U.K. economy if a transition deal is agreed on by the end of the first quarter to provide clarity for businesses.

If one isn't agreed on around that time, he said the bank will assess the impact on economic confidence and business activity.

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1:30 p.m.

Bank of England Governor Mark Carney says the recent turmoil in stock markets didn't come as a huge surprise.

In a press briefing after the bank kept its main interest rate at 0.5 percent, Carney said he wasn't inclined to give a "running commentary" on market moves but that he and others had recently observed that volatility in markets had been "extremely low."

He said it's "healthier" when markets have "two-way risks" even when trending up or down. Over the past year, stocks, particularly in the U.S., have seemingly been on a never-ending rise with little pullback.

Given that, he said the return of volatility was "not an entirely surprising development."

On Monday, the Dow Jones industrial average recorded its biggest-ever points decline and its biggest percentage fall in more than six years.

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1:00 p.m.

Bank of England Governor Mark Carney has sought to reassure homeowners and businesses that interest rates are not expected to rise to levels that existed before the global financial crisis a decade ago.

At a press briefing Thursday, after the bank held its main rate at 0.5 percent but signaled another hike could come this year, Carney said increases will be gradual.

In the period before the 2008 market crash, the bank's average interest rate was around 5 percent.

Carney said: "We are not talking about going back to those levels." Many in the markets think the next quarter-point hike will come in May

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12:30 p.m.

The British pound has risen sharply after the Bank of England indicated it could raise interest rates again as soon as May.

While acknowledging the risks to the British economy from the country's exit from the European Union, the bank revised up its growth forecast in light of better economic activity around the world. It suggested it could make three quarter-point increases to the key rate over the coming three years, with the first possibly as soon as May. On Thursday, it left the key rate at 0.5 percent.

Following those projections, the pound rose 0.6 percent to $1.3962.

Ben Brettell, senior economist at stockbrokers Hargreaves Lansdown, said rates could "rise faster and further than investors had expected" and noted that the bank's "rhetoric echoed that of September's meeting minutes, which preceded the November rate hike."

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12:00 p.m.

The Bank of England has kept its key interest rate on hold as Britain's economy faces uncertainties related to its exit from the European Union.

The bank said Thursday that its rate-setting committee had unanimously voted to keep the key rate at 0.5 percent, three months after raising it for the first time in a decade to get inflation down.

The Brexit talks are set to officially recommence soon, but there's a lack of clarity over what Britain's future relationship with the EU will be after the exit in March 2019.

Many in the markets think that some sort of agreement over the immediate post-Brexit period will be thrashed out. That could allow the central bank to raise its main interest rate again in coming months to bring down inflation.