FXStreet (Delhi) – Research Team at Danske Bank, suggests that they have moved their call for the first Bank of England (BoE) hike to Q2 16, probably in May (previously Q1 16, February), as the lower oil price eases the pressure on the BoE.
Key Quotes
“Even though we still expect CPI inflation to be low in May 2016, we think the underlying pressure on the BoE is still larger than currently recognised. We expect wage inflation to increase next year as the labour market tightens further. If the BoE waits too long to raise rates, inflation may be above target once the temporary factors begin to fade out of headline inflation.”
“As we now expect BoE to hike in Q2, we expect the BoE to hike only two times in 2016, taking the Bank Rate to 1% by the end of 2016. We still project substantial rises in UK interest rates driven by Bank of England rate hikes but due to the postponement of the first Bank rate hike, we have lowered our 1-12M interest rate forecasts some 5-10bp across the curve. We still project a substantial flattening of the 2-10Y and 5-10Y curves, with interest rates in the 0-5Y segment rising the most. Our three-, six- and 12-month forecasts are above forwards across the curve.”
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