BoE expected to tighten this year – Natixis

The BoE is slowly preparing to raise interest rates, suggests Sylwia Hubar, Research Analyst at Natixis.

Key Quotes

“Three MPC members, Kristin Forbes, Ian McCafferty and Michael Saunders, dissented and voted in favor of a 25bp rate increase in June, suggesting that the balance of trade-off between support to the economy and control of above-target inflation has tipped towards the latter one.” 

“We expect that UK tightened labor market conditions will ultimately result in higher wages. Somewhat stronger pay expansion will be decisive for the BoE to withdraw some of last year’s stimulus by the end of the year. Should, however, the pay growth disappoint, the BoE would refrain from tightening this year, as the downside risks to household consumption would be too significant given that households have limited space to reduce savings further and increasingly face restrained real estate wealth effect.”