13 Feb 2014
Flash: BoE first rate hike in Q3 2015 - Investec
FXStreet (Barcelona) - Despite the euphoria surrounding the GBP, Jonathan Pryor, Corporate Treasury Analyst at Investec, expects the first rate hike to be around the third quarter of next year.
Key Quotes
"It was another strong day for the proud pound yesterday as Governor Carney caught the market off guard by announcing the BoE has raised its growth expectations for 2014 from 2.8% in November to 3.4%. The BoE also stated that it would aim to eliminate spare economic capacity by the end of its 2-3 year forecast horizon."
"These headline announcements were undoubtedly always going to strengthen the pound but the initial reaction was slightly erratic as the Bank also introduced a whole range of indicators in addition to the unemployment rate, including business surveys and the number of hours worked. This new guidance seemingly delays potential rate rises as it gives the Central Bank more room to say the economy is not ready to start normalising rates but the market didn’t buy it and many leading banks have revised their expectations on the first interest rate hike in the UK to the end of 2014 rather than the spring of 2015, contributing to a stampede to buy Sterling yesterday morning".
"It’s worth noting the Investec economics team are not so hawkish and are still pencilling in the third quarter of next year (after the May election) for the first hike with the Bank of England’s medium term forecasts of just below target inflation being a key factor in this view."
Key Quotes
"It was another strong day for the proud pound yesterday as Governor Carney caught the market off guard by announcing the BoE has raised its growth expectations for 2014 from 2.8% in November to 3.4%. The BoE also stated that it would aim to eliminate spare economic capacity by the end of its 2-3 year forecast horizon."
"These headline announcements were undoubtedly always going to strengthen the pound but the initial reaction was slightly erratic as the Bank also introduced a whole range of indicators in addition to the unemployment rate, including business surveys and the number of hours worked. This new guidance seemingly delays potential rate rises as it gives the Central Bank more room to say the economy is not ready to start normalising rates but the market didn’t buy it and many leading banks have revised their expectations on the first interest rate hike in the UK to the end of 2014 rather than the spring of 2015, contributing to a stampede to buy Sterling yesterday morning".
"It’s worth noting the Investec economics team are not so hawkish and are still pencilling in the third quarter of next year (after the May election) for the first hike with the Bank of England’s medium term forecasts of just below target inflation being a key factor in this view."