U.K. Rates Seen Rising in Early 2016 as BOE Shrugs Off Turmoil

Investors should brace themselves for an interest-rate increase in early 2016 as the Bank of England shrugs off recent financial-market turmoil, according to economists.

More than two-thirds of respondents to Bloomberg’s monthly survey said the weakening prospects for China’s economy aren’t enough to deter officials from removing the emergency stimulus that’s been in place since 2009. That chimes with the policy makers’ view that it would be premature to adjust their outlook when the U.K.’s expansion remains on track.

While the BOE kept its key rate at a record-low 0.5 percent last week, Ian McCafferty voted for an increase. Kristin Forbes said Friday rates may have to increase “sooner rather than later” and Martin Weale wrote in The Scotsman newspaper that they will need to rise “relatively soon” because inflation will probably be above the 2 percent target in two to three years’ time. Economists forecast a 25 basis-point increase in benchmark borrowing costs in the first quarter. Still, markets aren’t so sure, with futures contracts only fully pricing in an increase by the second half of the year.


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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam