Boe: Preparing for the hike? - Rabobank

By FXstreet.com | Updated July 30, 2014 AAA

FXStreet (Guatemala) - Jane Foley, Senior Currency Strategist at Rabobank explained that forecasting the timing of the first BoE rate hike has been an exciting business in recent weeks.

“First BoE Governor Carney at the Mansion House speech on June 12 sounded hawkish. Then he pushed back by remarking that the low level of wage inflation in the UK could be indicative of more slack in the economy than other labour market indicators were projecting”.

“In contrast to the weak tone of wage data, this morning’s stronger than expected 1.9% y/y print in June CPI inflation on first sight suggests that demand in the UK economy could be nearing the point at which it may need some reining in with a slightly reduction in monetary policy accommodation”.

“However, it is very difficult to come to this conclusion when real wages are still bias lower. Until real wages increase, there is a strong reason to suspect that underlying demand in the economy will remain weak”.

“In addition to that, the -4.4% y/y drop in PPI input inflation in June provides good reason to suspect that sterling strength is doing a good job in containing inflationary pressures. For this reason, we remain wary of moving forward our forecast of the first BoE rate hike in Q2 2015, though we will be watching tomorrow’s release of the May wage data closely”.

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