UK: First BoE hike in Q2 – Danske Bank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 11, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Mikael Olai Milhøj, Analyst at Danske Bank, suggests that disappointing wage growth in H2 15 and the further fall in oil prices are the main reasons the research house has recently moved their call for the first Bank of England hike to Q2 16, probably in May.

    Key Quotes

    “The lower oil price, in particular, has lowered the inflation outlook for the UK significantly. The risk picture is in our view balanced. On one hand, the UK real economy is doing well with growth slightly above trend, increasing employment and the unemployment rate more or less back to ‘normal’.”

    “On the other, temporary factors such as the strong GBP and lately the lower oil price, in particular, are keeping inflation low and we believe they will continue to put downward pressure on CPI inflation. We expect CPI inflation to stay below 0.5% in H1 16, before moving up in H2 16. In our main scenario, under the assumption of a small rebound in oil and food prices, CPI inflation will reach 2% towards year-end 2017.”

    “As movements in oil and food prices have been very difficult to predict – and may continue to be so – we have also looked at the inflation outlook with unchanged commodity prices. Even in this scenario, headline inflation will pick up in H2 16 and eventually reach 1.7% towards the end of 2017.”

    “Even though we still expect CPI inflation to be low in May, we think that the underlying pressure on the Bank of England is still greater than currently recognised. Monetary policy works with a lag and unemployment is already more or less back to ‘normal’.”
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