Bank of England likely to keep rates on hold in 2017, may hike in 2018 - Scotiabank

The Bank of England has taken some small steps towards its first rate hike. The latest decision showed three in favour of an immediate hike, while the majority view was that tolerance to an inflation target overshoot had lowered. But, Governor Carney’s subsequent Mansion House speech indicated that in his view now is not the time for hiking rate, noted Scotiabank in a research report. Especially, the governor emphasized weak domestic inflationary pressures and anaemic wage growth.

The majority on the committee are expected to oppose a rate hike in 2017. Furthermore, with the GDP growth expected to reside in the 0.2 percent quarter on quarter to 0.4 percent range in the rest of 2017, the MPC is unlikely to hike the key rate at this stage. The backdrop of a rate hike is expected to be more favourable in 2018, stated Scotiabank.

“At that stage, we expect the pace of GDP growth to be on an upwards trajectory and there is more scope for wage inflation to accelerate. However, we doubt that there will be sufficient ammunition for a hike until the second half of the year”, added Scotiabank.

There is significant political uncertainty following the snap General Election, which led to a hung parliament. During the campaign, the Chancellor signalled that the rate of austerity would be moderated a bit. If delivered, it indicates towards a small addition to GDP growth from 2018 onwards.

At 22:00 GMT the FxWirePro's Hourly Strength Index of British Pound was slightly bearish at -69.5054, while the FxWirePro's Hourly Strength Index US Dollar was neutral at 28.4229. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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