BoE points to a rate hike in May 2016 – Rabobank

FXStreet (Edinburgh) – Senior Currency Strategist at Rabobank Jane Foley believes the ‘Old Lady’ will hike rates in Q2 2016.

Key Quotes

“In view of the headwinds coming from sterling strength, fiscal tightening, slow growth in the Eurozone and a weakening pace of expansion in China, we would argue that there is still plenty of reason for the MPC to remain wary about hiking interest rates prematurely”.

“Additionally, the current weakness in oil prices suggests that the Bank’s predicted recovery in CPI inflation into this end of this year and through into 2016 could be delayed”.

“While wage inflation appears to be gaining ground, the current combination of weak productivity growth, strong wage growth and weak CPI inflation is unsustainable”.

“Without a rise in productivity or inflation it is likely that pay increases will naturally be capped”.

“The more optimal outcome would be for both productively and wages to rise. But, in this scenario firms would not have an incentive to raise prices meaning that the BoE would have reason to remain relaxed”.

“While the market is likely to watch wage inflation data closely in the coming months, for the time being we maintain our view that BoE rate are likely to remain on hold until May 2016”.

“However, since the Bank is still likely to be the second G10 central bank to be out of the rate hike stalls we expect sterling to remain firm against a host of other currencies”.

Senior Currency Strategist at Rabobank Jane Foley believes the ‘Old Lady’ will hike rates in Q2 2016…

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