BoE: Is wage inflation enough to trigger rate hike? – Rabobank

By FXStreet FXStreet (Delhi) – Jane Foley, Senior FX Strategist at Rabobank, suggests that they remain out of step with the consensus of the Reuters survey of economists which now favours Q2 for the first move, compared with Q1 in the previous survey.

Key Quotes

“A month ago we pushed back our forecast for the first Bank of England rate hike of the cycle from May 2016 to August 2016. The most hawkish of economists’ views appears to be focused on the increase in wage inflation in the UK and on the assumption that this will breed broad based price pressures in the foreseeable future.”

“We would argue, however, that the signals coming from the labour market are not completely clear and that continued weakness in commodity prices should also continue to limit the potential for a recovery in headline inflation. Additionally, sterling strength should place a cap on imported price pressures.”

“Given the rise in market forecasts regarding the likelihood of more ECB easing by year end, the BoE may be more likely to delay its first rate hike in order to prevent too much monetary tightening being transmitted via the exchange rate.”

“That said, a rise in the value of the UK’s effective exchange rate …read more

Source:: FX Street