Earlier and faster

UBS
By February 13, 2018 01:00

Earlier and faster

Regional view – United Kingdom

Earlier and faster. Three words that sum up the last week's Monetary Policy Committee (MPC) meeting and readings from the inflation report. In summary, the Bank of England (BoE) is preparing us for interest rates to rise soon, and for subsequent hikes to be a little more frequent than we have been used to. In fairness, given that base rates have increased once in the last decade, a rate rise before February 2028 would meet this criterion. So we can be pretty confident that the "faster" mandate will be met, but what about the "earlier" part? A few weeks back we revised our growth, inflation, and interest rate forecasts in light of the better-than-expected performance of the economy last year. We expect the BoE to hike base rates when it meets in May, and following last week's meeting, it would seem the markets would now agree with us. Prior to the release of the Inflation Report, markets were only placing a 50– 60% chance of a hike in May, after which the probability had risen to around 70%. So, it is likely that the "earlier" mandate will also be met. Another matter that made the headlines was the upgrade to the Bank's growth forecasts; they are now predicting 1.8% GDP growth for 2018, not too dissimilar to what we saw last year. 

UBS
By February 13, 2018 01:00

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