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UK: BoE should maintain status quo tomorrow – ING

FXStreet (Delhi) – James Knightley, Senior Economist at ING, suggests that the Bank of England should leave policy unchanged this Thursday as external worries and non-existent price inflation offset a decent domestic growth and wage inflation story.

Key Quotes

“The UK economy is growing fairly strongly, is creating jobs, confidence is high and pay is rising significantly faster than the cost of living. However, China worries and disappointing news out of the US has led financial markets to no longer expect a BoE rate hike within the next twelve months.”

“Furthermore, the labour market is rebounding following the weakness seen around the time of the May General Election, which we attribute to the political uncertainty clouding the growth outlook. Pay is also accelerating, with private sector weekly earnings now rising 3.7% YoY. Admittedly, consumer price inflation remains close to zero, but service sector inflation is picking up.”

“As such, we think financial markets are being too cautious and we suspect that the MPC meeting minutes, published alongside the actual policy decision on Thursday at 12:00 BST will continue to highlight the divergence between domestic strength and foreign weakness.”

“Our house view is that the wall of stimulus being provided by the Chinese authorities, coupled with a US economy that is showing respectable growth and a Eurozone economy that is showing signs of improvement will mean global growth worries will stabilise in coming months. This may not be enough to result in our official forecast of a February BoE rate hike after a December Federal Reserve move, but we doubt very much the market pricing that rate hikes are more than a year away.”

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