UK: August BoE hike remains on the table - RBS

The Bank of England held rates at 0.5% last week as the move was expected after a stream of weaker than expected data had blown plans for a rate hike off course, but an August hike remains on the table with markets giving it a 40% chance, according to analysts at RBS.

Key Quotes

“The decision also came with an update to the Bank’s growth outlook. It now thinks the economy will grow by an uninspiring 1.4% this year, previously estimating it would be 1.8%. That improves slightly next year to 1.7% (formerly a similar 1.8%). While real income growth is set to remain subdued, the Bank thinks growing investment and exports will provide a good degree of offset. The inflation forecast was also trimmed as it appears sterling’s rise is falling out of the inflation figures quicker than previously assumed. The 2% inflation target is expected to be reached in 2020.”

“The drivers of UK economic growth have shifted, with consumer spending taking an uncharacteristic backseat as investment grabs the wheel.”

“The UK construction industry had a bad start to the year, with output down 2.7% in the three months to March.”

“After March’s weather-induced low, the UK’s private sector bounce back was disappointing. Not so for all regions mind, with a strong rebound in business confidence in eleven of the twelve regions.”

“All eyes are on the housing market as the prospects show a strong north/south split. Halifax reported house prices rose 2.2% in the year to April, but that prices had started to fall in the last month.”