BoE to hike at least twice in 2018, next as soon as Feb? - Scotiabank
Analysts at Scotiabank explained that GDP growth was less bad during Q3, but still not that good.
"At 0.4% q/q the economy expanded broadly in line with the newly downgraded assumption of potential and leaves the UK on track to expand by 1.5% on average during 2017. While H2 got off to a better start than H1, the fundamentals are no better. Inflation is higher (3% y/y according to the latest CPI) and wage inflation is still around 2%.
Negative real wage growth continues to hold back consumer spending growth, with precious little offset from other components of growth. In particular, the lingering uncertainty associated with Brexit is deterring a bounce in investment. Inflation is at or close to its peak at 3% y/y.
We believe that there are good reasons to expect a fairly brisk deceleration during 2018. In particular, the uplift to imported inflation during 2017 that resulted from the slump in the GBP exchange rate is becoming exhausted and should unwind next year. All in all, we expect CPI inflation back in line with the BoE’s 2% target a year from now.
The BoE is at the start of its interest rate normalisation process, though the market is not aiming high enough for rates next year in our view. We expect two further hikes in 2018, with the next arriving as soon as February if there is sufficiently upbeat news on wages."