UK: Interest rates all set to rise in 2016 – HSBC

By FXStreet FXStreet (Delhi) – Research Team at HSBC, push out their forecast for the first 25bp rate rise for UK from February to May 2016.

Key Quotes

“A strong case for a policy tightening can be made: However, several of the arguments for tightening policy remain intact. This is why we move our call out by just three months. We still think rates will rise long before the market expects, as the market is not full pricing in a 25bp UK rate rise until January 2017.

The pace of tightening will be slow, due to the low ‘natural’ interest rate: Following the first rate rise, we expect a very slow path up in policy rates. We forecast just one further 25bp rate rise in Q4 2016 and two 25bp increases in 2017. This slow pace of tightening reflects the fact that we think the natural interest rate is very low and likely to rise only slowly. Over the coming years, as these headwinds decline, the medium-term natural interest rate should rise back towards its long-term level. But the long-term natural real rate has been falling for the past 30 years due to demographic changes, slower productivity growth and reduced investment spending. Even if these …read more

Source:: FX Street