BOE Less Likely to Follow Fed in Rate Hike

With U.K. inflation hovering near zero and the slump in oil pressuring prices lower, an interest rate rise by the Bank of England looks increasingly less likely to come hot on the heels of the U.S. hike.

The annual rate of inflation rose to 0.1 percent in November, official statistics showed on Tuesday, suggesting the BoE may have a long wait before inflation starts to near the targeted 2 percent, incentivizing a rate hike.

“The inflation outlook has continued to quell any expectations for a near-term hike in rates from the Bank of England, with the latest push lower in energy prices set to push down on the recovery in headline inflation over coming months,” Simon Smith, chief economist at FxPro, said in a research note after the data was out.

The U.S. Bureau of Labor Statistics also posted its CPI for November on Tuesday. Reporting differences make a direct comparison with the U.K. difficult, but the U.S. index showed that inflation was unchanged in November on a seasonally adjusted basis and up 0.5 percent over the last 12 months before seasonal adjustment.

The BoE opted to hold the base rate at 0.5 percent this month, having made no hikes since 2006. The 0.5 percent rate has been maintained since a succession of interest rate cuts between December 2007 and March 2009, during and following the global financial crisis.

BoE Governor Mark Carney has hinted at an interest rate rise next year. According to the bank’s inflation report from November, market pricing suggests rates will rise to 0.6 percent in the third quarter of 2016. Rates are then seen rising by 10 basis points each quarter in 2017 and 2018, to 1.3 percent.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza