13 May 2015
BoE QIR preview: UK rates might remain on hold until May 2016 – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, believes that in today’s Quarterly inflation report, the Bank of England might not rush in for a rate hike and remain on hold until May 2016, and further forecasts GBP/USD to spend much of H2 2015 around 1.50 levels.
Key Quotes
“This morning the BoE will outline its latest set of forecast within its Quarterly Inflation Report. As a consequence of the pre-election purdah, there has been an absence of news from the MPC in recent weeks. The minutes of the March MPC meeting made clear that members were not expecting deflation to take root in the UK. By appearing to rule out another rate cut despite a zero inflation rate, the publication was seen as having hawkish slant relative to market expectations.”
“As long as real earnings and inflation expectations are positive we would argue that there is very little risk of another BoE rate cut this cycle.”
“That said, we also see little reason to expect the Bank to be in any rush to hike. Even though oil prices are now trending higher, real wage growth is still moderate (though a better than expected 1.9% 3m y/y rise in March average weekly earnings is encouraging).”
“Also sterling has been trending higher and implicitly tightening monetary conditions while the threat of further fiscal austerity should buy the Bank plenty of room before rates are raised. In our view rates could remain on hold until May 2016.”
“Assuming that the USD bulls manage to recover some ground ahead of an anticipated late year Fed hike, we expect cable is likely to spend much of H2 2015 closer to GBP/USD1.50 rather than at current levels.”
Key Quotes
“This morning the BoE will outline its latest set of forecast within its Quarterly Inflation Report. As a consequence of the pre-election purdah, there has been an absence of news from the MPC in recent weeks. The minutes of the March MPC meeting made clear that members were not expecting deflation to take root in the UK. By appearing to rule out another rate cut despite a zero inflation rate, the publication was seen as having hawkish slant relative to market expectations.”
“As long as real earnings and inflation expectations are positive we would argue that there is very little risk of another BoE rate cut this cycle.”
“That said, we also see little reason to expect the Bank to be in any rush to hike. Even though oil prices are now trending higher, real wage growth is still moderate (though a better than expected 1.9% 3m y/y rise in March average weekly earnings is encouraging).”
“Also sterling has been trending higher and implicitly tightening monetary conditions while the threat of further fiscal austerity should buy the Bank plenty of room before rates are raised. In our view rates could remain on hold until May 2016.”
“Assuming that the USD bulls manage to recover some ground ahead of an anticipated late year Fed hike, we expect cable is likely to spend much of H2 2015 closer to GBP/USD1.50 rather than at current levels.”