There is an uncertainty about the timing of the Bank of England's hike rates. Due to weak global economic outlook and commodity prices, and the risks to growth and asset prices, analysts expect the central bank may postpone its rate hike until 2017. On the other hand, tighten labor market, expected rise in commodity prices may cause the central bank to consider for an early rate hike.
The CPI inflation in the United Kingdom is expected to increase more slowly than the central bank expected. The headline CPI is likely to remain below 2% until early 2018, estimates Lloyds bank. However, the rising domestic costs may accelerate the inflation rate, and thereby, the price level will move beyond markets' expectation.
"Assuming an initial move in 2016, we expect a pace of tightening of 50bp per year, leaving Bank Rate at 1.25% at end-2017. Against this backdrop, we expect sterling bond yields to drift higher over the course of 2016, with the short end of the yield curve likely to post the sharpest increase. We look for the 10-year government bond yield to rise from 1.8% currently to around 2.4% by end 2016", foresees Lloyds Bank.
