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25 Jul 2014
BoE to hike 2015 Q1 or sooner? - Rabobank
FXStreet (Guatemala) - Analysts at Rabobank suggested that forecasting the timing of the first BoE rate hike has been an exciting business this summer.
Key Quotes:
“First BoE Governor Carney at the Mansion House speech on June 12 sounded hawkish. Then he pushed back by remarking that the low level of wage inflation in the UK could be indicative of more slack in the economy than other labour market indicators were projecting”.
“In contrast to the weak tone of wage data, the stronger than expected 1.9% y/y print in June CPI inflation on first sight suggests that demand in the UK economy could be nearing the point at which it may need some reining in with a slightly reduction in monetary policy accommodation”.
“Some MPC members may have been rattled by the CPI release since the minutes of the July MPC meeting stated that “for some members the decision (on rates) had become more balanced in the past few months than earlier in the year””.
“However, it is very difficult to come to the conclusion that rates need to rise when real wages growth is negative. Until real wages rise, there is a strong reason to suspect that underlying demand in the economy will remain restrained”.
“In addition, the -4.4% y/y drop in PPI input inflation in June provides good reason to suspect that sterling strength is doing a good job in containing inflationary pressures. For this reason, we remain wary of moving forward our forecast for the first BoE rate hike in Q2 2015, though we will be watching wage data closely”.
Key Quotes:
“First BoE Governor Carney at the Mansion House speech on June 12 sounded hawkish. Then he pushed back by remarking that the low level of wage inflation in the UK could be indicative of more slack in the economy than other labour market indicators were projecting”.
“In contrast to the weak tone of wage data, the stronger than expected 1.9% y/y print in June CPI inflation on first sight suggests that demand in the UK economy could be nearing the point at which it may need some reining in with a slightly reduction in monetary policy accommodation”.
“Some MPC members may have been rattled by the CPI release since the minutes of the July MPC meeting stated that “for some members the decision (on rates) had become more balanced in the past few months than earlier in the year””.
“However, it is very difficult to come to the conclusion that rates need to rise when real wages growth is negative. Until real wages rise, there is a strong reason to suspect that underlying demand in the economy will remain restrained”.
“In addition, the -4.4% y/y drop in PPI input inflation in June provides good reason to suspect that sterling strength is doing a good job in containing inflationary pressures. For this reason, we remain wary of moving forward our forecast for the first BoE rate hike in Q2 2015, though we will be watching wage data closely”.