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Berenberg projects November rate hike at earliest

  • 04/02/2016
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Berenberg projects November rate hike at earliest
A ‘dovish’ stance from the Bank of England, the Brexit risk and a weak economic outlook are likely to push the next rate hike out to November, said a bank.

November is even earlier than the market indicators suggest, said Berenberg Bank, suggesting even this is a bold statement.

“In the past, the MPC’s central forecast for inflation – which incorporates the path of interest rates implied by market indicators – overshoots on the 2% target when the MPC thinks that the market is too far out on rate hikes. We therefore expect the MPC’s inflation outlook to exceed the 2% target possibly as early as 2017 to indicate that the MPC are looking to hike sooner than market pricing suggests,” it said.

However, the bank said UK economic growth has mostly improved since November and is sitting at a 0.5% growth in Gross Domestic Product (GDP).

As such, we might see some re-pricing as expectations are brought forward. But increases in sterling may prove temporary depending on how the risk relating to the forthcoming EU referendum plays out.

Unemployment has fallen from 5.4% to 5.1% and headline inflation has returned to positive territory to +0.1% from -0.1%.

On the housing market, Alex Gosling, CEO, online estate agents, said: “With the likelihood of an early interest rate no longer looming, the continued lack of supply, and a rush of buy to let investors trying to pick up properties before the new Stamp Duty hikes kick in, price growth is likely to continue at a pace.”

He added: “But we might start to see a rebalance in demand versus supply, particularly at the lower end of the market, once the new 3% stamp duty rate comes into force, as this extra cost is likely to be a barrier to entry for many amateur would-be landlords.”

The Bank of England’s Monetary Policy Committee is widely expected to keep interest rates on hold today.

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