1. Hello Guest Do you know binary.com offers exclusive $20 No Deposit Bonus for FX Binary Point visitors? Click here to sign up

UK: Steady as she goes - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 14, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Joined:
    Oct 7, 2015
    Messages:
    27,524
    Likes Received:
    0
    FXStreet (Delhi) – James Knightley, Senior Economist at ING, suggests that falling commodity prices and subdued wage growth suggests little inflation pressure, while Brexit uncertainty adds to the arguments supporting stable BoE policy.

    Key Quotes

    “The minutes to the December MPC meeting suggested that there was little appetite for an imminent Bank of England interest rate hike. Officials referenced the fall in the oil price (which has since fallen another US$9/bbl) as a factor that meant “headline inflation rates would remain subdued”. It looks as though inflation will remain well below 2% this year, suggesting little need for a rate rise any time soon.

    In terms of growth, the combination of weakness in external demand and sterling's relative strength have clearly hampered the manufacturing sector, while the plunge in energy prices has exacerbated the decline in investment and output of the UK's offshore oil and gas industry.

    The labour market is in good health with very strong employment growth (207k in the three months to October), suggesting that the corporate sector remains upbeat, which should also translate into ongoing healthy consumer sentiment. We also remain hopeful that wages will gradually respond to the tightening labour market conditions and we will see real incomes climb.

    Our main worry though is the UK's EU referendum, which looks set to be held later this year. At the moment the UK electorate is split 50-50 on whether to stay or to leave, but there are around 20% of people who are undecided.

    Nonetheless, the uncertainty generated by the vote is likely to hurt sentiment and spending of both households and corporates. As such, we expect an economic "soft patch" in the 3-6 months leading up to the vote, which we suspect will be held between late 2Q and early 4Q16.

    With consumer price inflation set to remain low given the ongoing softness in commodity prices and the fact that wage growth hasn't accelerated as quickly as we had suspected, the Bank of England has room to leave monetary policy extremely loose until the economic uncertainty subsides. As such, we believe that the first rate rise will come in November, but the prospect of a decent "relief" economic bounce-back after the referendum means a steady rate rise programme through 2017.”
    For more information, read our latest forex news.
     

Share This Page