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GBP: BoE rate hike to come in 1H16 – ING

FXStreet (Delhi) – James Knightley, Senior Economist at ING, suggests that market expectations for a BoE rate rise have been pushed back to 2017, but with core and service sector CPI moving higher and wages gaining real momentum we still believe 1H16 is more probable.

Key Quotes

“UK consumer price inflation has been bumping around the zero figure throughout 2015 as a combination of plunging energy costs, a supermarket price war and lagged effects of sterling strength have helped to offset price pressures elsewhere. We don’t expect the story to be any different in today’s September release.”

“However, it is a different story for service sector price inflation. Wages tend to be the largest single cost for service sector companies and with wage growth having really picked up in recent months there is little prospect of deflation here. In fact, private sector wage growth is now up to 3.7% and could hit 4% when we get the UK labour report tomorrow.”

“With sterling having started to weaken again recently and oil prices moving higher, albeit from very low levels, there is the potential for goods price inflation to become less negative in the coming months, especially so as last year’s step falls in commodity prices gradually drop out of the annual comparison. As such, we could see headline inflation move back up to 1%YoY around March and if economic activity and employment continue to improve then the arguments for a rate rise in 1H16 will build.”

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