BoE rate rise in 2016: Probably – RBS

By FXStreet FXStreet (Delhi) – Research Team at RBS, forecast is for moderately sub-trend GDP growth in 2016 (2.0%) for UK.

Key Quotes

“Commentators and policymakers appear fixated on the rise in average earnings. Wage inflation is picking up (at a pedestrian pace) but our concern is the imminent fiscal hit: the £7bn combination of tax credit reductions, welfare cuts and tax rises dwarfs the c.£1bn boost from the National Living Wage. Employment growth remains solid, but is a lagging indicator and a few cracks are beginning to appear (a sharp slowdown in full-time employee job growth and declining average working time).”

“Brexit risk is likely to induce some postponement of capex and hiring by multi-nationals, while the resumption of fiscal tightening will dampen government consumption. Export-led growth will remain elusive against deterioration in global trade and sterling’s ongoing ascent. CPI inflation will blip higher at the beginning of 2016 (energy price base effects), but we expect only a gradual climb back to target as global commodity disinflation works its way along the production chain and the dent to disposable income growth constrains domestic demand and price pressures.”

“The RBS forecast is for the first 25bp rate hike in August 2016 (the November Inflation …read more

Source:: FX Street