November Gains Ground as Favored Month for BOE Rate Change

  • Swathe of U.K. forecasters push back BOE rate-rise forecasts
  • Low oil prices, weak wages and global turmoil weigh on prices

Barclays Plc, Investec Securities and UniCredit pushed back their calls for a Bank of England rate increase, extending a wave of changes from banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. that reveal a growing pessimism about the U.K.’s prospects.

The first policy tightening since the financial crisis now isn’t seen by some analysts until November, after a slump in oil, global market turmoil, weak inflation and uncertainty about Britain’s future in the European Union combined to cloud the outlook. The BOE’s Monetary Policy Committee kept its key rate at a record low on Thursday and said it would consider the “full implications” of the latest developments in its Inflation Report next month.

Recent events have pushed “the balance of risks to U.K. inflation -- and hence to the outlook for bank rate -- firmly to the downside,” Chris Hare, an economist at Investec in London and a former BOE official, wrote in a note. “The EU referendum vote could be a factor in delaying rate hikes, too.”

Hare updated his call shortly after the BOE’s decision at noon, and now sees the central bank lifting its benchmark from 0.5 percent in the fourth quarter, compared with the second quarter previously. UniCredit’s statement around the same time said the chance of an increase in May had “fallen significantly” and said November was now more likely.

Seven Cuts

These changes mean there are now at least seven forecasters who’ve cut their expectations for a BOE move soon and have picked November as the likely date for a change. Last week, ING and Bank of America moved their rate increase from May. JPMorgan, Rabobank and Nomura have also shifted their calls to that month, while Goldman and Barclays are looking for the fourth quarter.

Bloomberg Intelligence economist Dan Hanson moved his forecast to the second half of 2016, from the second quarter. Investors are even more pessimistic, with futures contracts not fully pricing in an increase from 0.5 percent until after February 2017.

Still, some economists stuck to their guns. Berenberg economist Kallum Pickering said he was sticking to his “cautious” call for a rate increase in May because the unemployment rate drop suggests the labor market has completely recovered, and consumer credit is showing signs of picking up.

A referendum on Britain’s membership of the 28-member bloc is due as soon as June and was cited by more than half of economists in a Bloomberg survey last month as the key risk facing the U.K. in 2016. Pacific Investment Management Co. said Thursday a vote to leave would reduce GDP by as much as 1.5 percent.

That view echoes that of former BOE policy maker Charles Goodhart, who said on Wednesday that the buildup to the vote “will cause a hiatus for a time in which no one will be able to do anything” in monetary policy.

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