Sterling slips as no BoE rate hike seen until late 2016

On the back of a softening in growth and increasingly dovish noises from the Bank of England, some 35 per cent of people now expect United Kingdom interest rates to rise in the coming year, down from 50 per cent in August, according to research by the central bank.

“But also the very strong sterling which we’ve had over recent months, and that has really kept the lid on inflation, and while sterling continues to act really as a moderating force it is doing the job for the Bank of England’s monetary policy committee for it”.

The wagers on the Treasury futures have implied that there is an 80% chance of the Fed announcing rate hikes on the 16th of December.

The greenback climbed for a second day following last Thursday’s stunning 3 percent fall against the euro after the European Central Bank delivered less stimulus than the market expected. BoE Governor Mark Carney and his colleagues have said they want to see more of a pick-up in British wages before they start to think about moving more quickly toward a rate hike.

Most economists still expect growth in GDP to pick up in the fourth quarter, to around 0.6 per cent from 0.5 per cent in the previous three months.

Twelve-month CPI inflation remained at -0.1% in October, a little more than 2 percentage points below the inflation target.

US Federal Reserve Chairwoman, Janet Yellen stated last week that Fed interest rate increases will come slowly in the months ahead amid tepid growth overseas and divergent monetary policies between the US and other nations.

As expected, the MPC voted by eight votes to one to leave rates unchanged and by nine votes to nil to maintain its money-printing programme at its current level. If the BoE waits too long to raise rates, inflation may be above target once the temporary factors begin to fade out of headline inflation.

“With inflation running at close to zero and concerns a slowing China may impact the health of the global economy, rate rises in 2016 are far from a certainty”.

“While I believe the economy is in a position to withstand a rate hike, I can understand why the central bank may be reluctant given the number of possible risks next year”, said Craig Erlam, senior market analyst with retail currency broker Oanda.

Danny Cox, chartered financial planner at Hargreaves Lansdown, said: “Cash savers are now facing their eighth year of miserable interest rates with only the smallest glimmer of light at the end of the tunnel. United Kingdom policy may soon start to look like it’s fallen behind the curve and expectations will grow of an upward move in United Kingdom rates next year”.

The private consumption, however, posted a recovery thanks to the record-low interest rate and the government’s measures to stimulate the economy.