Barclays pushed BoE rate call back Q4 16


15 January, AtoZForex.com, London – In light of slower economic activity, lack of domestic inflationary pressures, and an amplification of global risk-off, in addition to timing risks associated with the Brexit, Barclays push back its projection of BoE rate call from the previous forecast for Q2 2016, now to Q4 2016.

Even worse, “we acknowledge downside risks to our call, and hence cannot rule out a scenario whereby the BoE does not hike at all by year end,” Barclays added.

In the new scenario, the pace of the hiking cycle would only be 25bp every six months, allowing the England’s central bank to gather information and reassess its stance between hikes. “We acknowledge, though, that the pace of the cycle is highly uncertain, and the MPC may well adjust it as events unfold, despite its apparent commitment to hike rates “gradually,” Barclays added.

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Barclays pushed BoE rate call back Q4 16

Uncertainties and risks regarding the date and the outcome of the EU referendum present additional downside factors to the GBP and the timing of the rate lift-off along with the path for interest rates. Moreover, Barclays does not believe that a first rate hike could materialise before the referendum takes place.

Consider reading: BNP Paribas: EURUSD outlook and targets

BoE rate call

The assessment of the February inflation report should help to underpin valuations in the short-end of the curve as the prospects for imminent tightening are effectively validated. Historically, we are reaching the limits of how far is the first hike pushed out, approaching 18 months in Q1 15 just as the crude oil price first slipped lower.

“Our revised timing of BoE lift-off continues to represent upside risks to our GBP view in the context of extremely dovish market pricing, which suggests the first rate hike will not occur until May 2017. We expect further weakness of GBP against the USD but not the EUR by year-end,” Barclays projected.

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