UK: a modestly better growth outlook should allow BoE to hike next spring - Wells Fargo

According to analysts from Wells Fargo, a modestly better growth outlook should allow the Bank of England to start to hike interest rates next spring.

Key Quotes: 

“Monetary policymakers in the U.K. are among the few central bankers in the advanced world facing too fast, rather than too slow, inflation. CPI inflation has shot higher, at least in part, due to the marked depreciation of sterling in the wake of last year’s Brexit referendum. The Monetary Policy Committee of the Bank of England (BoE) expects inflation to peak around 3 percent in October before the price pressures from the sterling’s depreciation begin to fade.”

“Economic growth has remained modest in this environment, registering 1.7 percent year-overyear in Q2. Faster inflation and stagnant wage growth have taken a bite out of household’s real disposable income, exerting some headwinds on consumer spending growth.”

“The uncertainty related to Brexit also appears to be affecting business investment. Real fixed capital formation has decelerated over the past few quarters, and survey data that measure investment intentions generally remain low. Until some of the uncertainty regarding the Brexit process is cleared up, many businesses in the United Kingdom may adopt a wait-and-see attitude regarding investment spending.”

“The recent stabilization of sterling should help relieve some of the inflationary pressure, and stronger growth in the global economy, especially the Eurozone, should also contribute positively to real GDP growth. A modestly better growth outlook should allow the Bank of England to start to hike rates next spring.”