Bank of England likely to keep interest rate on hold in September, may hike in 2019

The U.K. economy’s macro scenario has been comparatively steady since the previous meeting in early August. According to a DNB Bank research report, their macro score rebounded in the summer and returned to positive territory in August. The recovery was mainly because of household indicators. The central bank is expected to keep interest rate on hold this week.

Retail sales rebounded solidly, and both the housing and the labor market rebounded as well. Business sentiment has been slightly mixed for the three sub-groups, but is fairly stable on average. GDP expanded by just 0.9 percent on an annualized rate in the first quarter; however, it rebounded to 1.5 percent in the second quarter.

The monthly GDP print for July had come 0.6 percent. The GDP projection for this year stayed the same at 1.3 percent in August, according to Consensus Economics. The LFS jobless rate dropped to 4 percent in May, while employment growth dropped to 1 percent, a still healthy figure, stated DNB Bank. The Brexit process is quite uncertain, with the final negotiations to be completed later this autumn.

Inflation has been stable. The headline inflation slowed more rapidly in earlier 2018 than the Bank of England had anticipated. Nevertheless, CPI inflation accelerated to 2.5 percent in July. Wage growth has dropped slightly. Wage growth had seen a rate of 2.4 percent in June.

The Bank of England is expected to hike rate next year, stated DNB. The central bank had hiked the rate to 0.75 percent in August. The market does not anticipate another hike until next year.

“Our forecasts indicate a hike at the November meeting in 2019. We anticipate that the present guidance; i.e. that hikes will continue to be at a gradual pace and to a limited extent, will be maintained at this meeting”, added DNB Bank.

At 14:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at 50.6163, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 18.3514. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex