Hawkish holdout UniCredit joins the rush to push back BoE hike calls

January 15, 2016

Commuters brave the rush hour on the northern line on the London underground in London, Britain August 5, 2015. Londoners face major transport disruption from Wednesday evening as train drivers and staff on the underground rail network walk out for the second time in less than a month. Unions are angry over plans to introduce a new night service from September and weeks of talks with transport bosses have failed to clinch a deal over pay and conditions.   REUTERS/Dylan Martinez  TPX IMAGES OF THE DAY - RTX1N70F

After Bank of England policymakers once again voted 8-1 in favour of keeping British interest rates on hold at a record low, UniCredit just got on board with a carriage full of other major banks and pushed back its call for when the initial rate rise would come.

In a Reuters poll on Thursday the median expectation as to when the first hike in nearly nine years would come moved out to the third quarter, three months later than a poll published only last week, and where the consensus view has been for several months now.

Bank Rate has held at a record low 0.5 percent since early 2009. The BoE will publish a more detailed analysis of where it thinks the economy is headed in its quarterly Inflation Report next month.

But the latest poll is the sixth time the consensus for the first British rate rise has shifted since economists first predicted one in a poll two years ago. JP Morgan and Citi have recently pushed out their call for a first hike.

“We expect the Report to confirm that the recent developments have further reduced the likelihood of a rate hike in the near-term,” said Daniel Vernazza, lead UK economist at UniCredit.

UniCredit, the most accurate forecaster in 2014 Reuters polls on British economic data and which previously had May pencilled in for the first hike, now expects the first 25 basis point rise to come in November.

“In light of the significant further fall in oil prices, the levelling-off of wage growth (albeit we think this is temporary) and the recent stock market volatility, we feel the likelihood of a rate hike in May has now fallen significantly,” Vernazza wrote.

Recent downbeat economic data, alongside virtually no inflation, has persuaded many forecasters that the Bank’s Monetary Policy Committee would not act anytime soon.

Sterling hit a 5-1/2 year low against the dollar on Friday, putting it on track for its third straight week of losses, as investors grew increasingly concerned about Britain’s economic outlook and pushed back chances of a rate hike to early 2017.

Since the November Inflation Report oil prices have fallen another 40 percent, bringing total losses over the past year and a halt to over 70 percent. According to the latest Reuters poll it will be well into 2017 at least before inflation reaches the Bank’s 2 percent target.

With reporting by Krishna Eluri

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