BoE to see inflation stabilise before hiking

In general, five pre-conditions are for the BoE to increase interest rates as illustrated in the table to the right: 

(1) A return to 'normal' unemployment at or below the BoE's NAIRU estimate, 

(2) An increase in wages at an annual pace of above 2%, 

(3) A growth outlook above the trend of 0.5% q/q, 

(4) A bottoming out of inflation and, finally, 

(5) No stress in financial markets.

As China does not face a sharp slowdown as it did in 2008, financial markets are likely to to calm down eventually such that the fifth pre-condition is also fulfilled.

"While the case for a rate hike is still building with unemployment back to 'normal', increasing wage growth and a solid growth outlook, we believe that the BoE still wants to see CPI inflation stabilise/move higher before hiking", says Danske Bank.