Back
2 Nov 2015
GBP: Sharper relief in sight - Rabobank
FXStreet (Delhi) – Jane Foley, Research Analyst at Rabobank, notes that since mid-July Bank of England Governor Carney has been suggesting that the timing of the first UK rate rise of the cycle will come “into sharper relief around the turn of the year”.
Key Quotes
“This week the Bank will present the final Quarterly Inflation Report of the year which will include revisions to forecasts on UK inflation and growth. In theory the Bank’s latest projections should help the market to fine tune its expectations regarding the timing of the first move. However, we would expect the Bank to remain reluctant this week to tie itself down to a specific period for the first policy tightening and this implies that a very broad spread of forecasts in the market regarding the timing of the first UK rate hike is likely to be maintained.”
“The MPC has been expecting the UK CPI inflation rate to remain around zero before picking up around the turn of the year as the influence of the sharp falls in food and oil at the end of 2014 fall out of the index. However, in view of the continued weakness of commodity prices the Bank predicted in the October MPC meeting that CPI inflation will remain below 1% until the spring.”
“On the back of a rise in concerns about the outlook for global growth combined with a spate of weak UK data misses, the money market has in recent months drastically pushed back its expectations for the first UK rate rise. Even though this morning’s strong manufacturing PMI release has lent some support, the market is not fully priced for the first UK rate rise of the cycle until late 2016.”
“Overall we expect that the Bank will continue to make clear this week that the next policy move will likely be a tightening. However, we doubt as to whether the Inflation Report will bring the timing of the next policy move into sharp relief. Indeed, given that the prospect of further ECB policy accommodation in December suggests the potential for further downside pressure on EUR/GBP, the Bank are unlikely to want to rush into a rate hike for fear of stirring too much interest in the pound. We maintain the view that EUR/GBP is likely to head towards the 0.68 area on a 12 mth view.”
Key Quotes
“This week the Bank will present the final Quarterly Inflation Report of the year which will include revisions to forecasts on UK inflation and growth. In theory the Bank’s latest projections should help the market to fine tune its expectations regarding the timing of the first move. However, we would expect the Bank to remain reluctant this week to tie itself down to a specific period for the first policy tightening and this implies that a very broad spread of forecasts in the market regarding the timing of the first UK rate hike is likely to be maintained.”
“The MPC has been expecting the UK CPI inflation rate to remain around zero before picking up around the turn of the year as the influence of the sharp falls in food and oil at the end of 2014 fall out of the index. However, in view of the continued weakness of commodity prices the Bank predicted in the October MPC meeting that CPI inflation will remain below 1% until the spring.”
“On the back of a rise in concerns about the outlook for global growth combined with a spate of weak UK data misses, the money market has in recent months drastically pushed back its expectations for the first UK rate rise. Even though this morning’s strong manufacturing PMI release has lent some support, the market is not fully priced for the first UK rate rise of the cycle until late 2016.”
“Overall we expect that the Bank will continue to make clear this week that the next policy move will likely be a tightening. However, we doubt as to whether the Inflation Report will bring the timing of the next policy move into sharp relief. Indeed, given that the prospect of further ECB policy accommodation in December suggests the potential for further downside pressure on EUR/GBP, the Bank are unlikely to want to rush into a rate hike for fear of stirring too much interest in the pound. We maintain the view that EUR/GBP is likely to head towards the 0.68 area on a 12 mth view.”