5 Jun 2015
UK getting closer to a rate hike – ING
FXStreet (Barcelona) - James Knightley, Senior Economist at ING, expects the Bank of England to start hiking rates before what markets are currently pricing in.
Key Quotes
“We are getting closer to the point when interest rates are finally raised. The market is looking for a move in the second quarter, but we think it will come sooner than that. Rate hikes will be gradual when they do materialise.”
“The Bank of England remains concerned that highly indebted households will experience pain quite quickly in this environment with a 1% rise in Bank rate implying around 15% of people with a mortgage will need to take some corrective action in order to have a positive net income after paying their financial liabilities – this could include finding a higher paid job, re-mortgaging onto a lower interest rate or selling the asset to clear the debt.”
“If Bank rate was to rise to 3.5% this would amount to nearly 50% of households that own a property with a mortgage. This clearly indicates that rates will not be increased aggressively.”
“However, if pay was to rise by 10% then the Bank of England estimates that far fewer people would face financial strife. This highlights how important pay rises are in terms of the interest rate debate.”
“Given pay is showing signs of picking up with the latest single month figure for average earnings approaching 3% YoY, this adds weight to our view that the BoE will start the tightening process before the point markets are currently pricing.”
Key Quotes
“We are getting closer to the point when interest rates are finally raised. The market is looking for a move in the second quarter, but we think it will come sooner than that. Rate hikes will be gradual when they do materialise.”
“The Bank of England remains concerned that highly indebted households will experience pain quite quickly in this environment with a 1% rise in Bank rate implying around 15% of people with a mortgage will need to take some corrective action in order to have a positive net income after paying their financial liabilities – this could include finding a higher paid job, re-mortgaging onto a lower interest rate or selling the asset to clear the debt.”
“If Bank rate was to rise to 3.5% this would amount to nearly 50% of households that own a property with a mortgage. This clearly indicates that rates will not be increased aggressively.”
“However, if pay was to rise by 10% then the Bank of England estimates that far fewer people would face financial strife. This highlights how important pay rises are in terms of the interest rate debate.”
“Given pay is showing signs of picking up with the latest single month figure for average earnings approaching 3% YoY, this adds weight to our view that the BoE will start the tightening process before the point markets are currently pricing.”