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24 Feb 2015
UK might see a 25bp bank rate hike in November - BAML
FXStreet (Barcelona) - Mark Capleton, Rates Strategist at BofA-Merrill Lynch, sees reasons for gradualism in tightening rather than reasons for deferring a rate hike, and hence forecasts UK to see a 25bp Bank rate hike in November.
Key Quotes
“So much emphasis is placed on prospective wage growth in judging when the first UK rate hike comes that we think it worth stressing that not all relationships between pay and unemployment have “broken down”.”
“.. one still holds: that between Unemployment/Vacancies (UV) ratio versus real wages.”
“Although we see a host of reasons to expect rate tightening to be very gradual indeed (we even toy with the notion of a first hike of 10bp), our central case is for a first Bank Rate increase of 25bp in November.”
“We also now argue for paying 5y5y real rates outright. Macro arguments for the trade should be supported by a step up in the supply pace next quarter and a big linker index event.”
Key Quotes
“So much emphasis is placed on prospective wage growth in judging when the first UK rate hike comes that we think it worth stressing that not all relationships between pay and unemployment have “broken down”.”
“.. one still holds: that between Unemployment/Vacancies (UV) ratio versus real wages.”
“Although we see a host of reasons to expect rate tightening to be very gradual indeed (we even toy with the notion of a first hike of 10bp), our central case is for a first Bank Rate increase of 25bp in November.”
“We also now argue for paying 5y5y real rates outright. Macro arguments for the trade should be supported by a step up in the supply pace next quarter and a big linker index event.”