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Paul Sirani, Chief Market Analyst at Xtrade, gives his forecast for UK interest rates

Make no bones about it, the UK economy is outperforming Brexit-induced expectations.
Back in June 2016, investors were steering well clear of the pound as the Bank of England cut interest rates to an historic low of 0.25%.
But punchy levels of consumer spending and a seemingly reinvigorated manufacturing sector have been the stiff upper lip of the UK. The question is whether that lip will start to quiver as Brexit takes its toll during the next 12 months.
At the moment, key data releases are painting a brighter than expected picture of the UK economy and we’re seeing a slow retreat in cable, meaning inflation is being bumped up significantly.
All signs therefore point towards to the Monetary Policy Committee (MPC) scheduling in an interest rate rise sooner rather than later. In reality, that all looks easier said than done.
A fine balance must be struck between cooling off an over-performing economy and judging the weight of the challenges that lie ahead.
While the UK economy seems to have flown over the first few hurdles following the historical Brexit vote, BoE Governor Mark Carney has stressed that there remains “twists and turns” ahead.
Outlined by Kirsten Forbes’ decision to stand down, the MPC is likely to remain stubborn on interest rates until the path ahead looks a little clearer.
Forbes was growing frustrated with the MPC’s dovish stance, a possible sign that the Bank is likely to remain unresponsive despite changing conditions.
We’re confident in thinking that rates won’t go up until the US Federal Reserve moves, as the BoE is likely to hold off due to the volatile economic outlook.
Still, the risks in backing the pound for a rate rise remain limited, as gains are still likely to be made against the Euro in the coming months.
Popularism is blowing across the continent at a very fragile time. We don’t expect the single currency to make any significant gains, especially whilst the prospect of Marine Le Pen becoming the next French President remains very real.

Xtrade Review

Tuesday, 14 Feb, 2017 / 8:08

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