Expectations maintained in light of Bank of England rate decision

April, 2018 Print

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AXA Investment Manager (AXA IM) senior economist, David Page, has reacted to the Bank of England’s decision to keep interest rates on hold, by saying the firm will continue to fine-tune its outlook for future rate hikes.

Page said he still thinks two hikes are likely in both 2019 and 2020, but recent inflation data is undershooting expectations at both AXA IM and the Bank of England in 2019, then starting to rise in 2020. He added: “We maintain our outlook for Bank Rate to be tightened twice in 2019, but reduce our expectation of a 2020 hike to just one hike, taking Bank Rate to 1.50% from 1.75% by end-2020. This remains modestly in advance of market expectation.”

However, this forecast depends on an assumption over Britain’s departure from the EU, and Page added: “We continue to assume that the UK will avoid political crisis over the coming quarters to enter a transition period of at least 21 months following exit from the EU next March broadly as currently outlined by the government. Our forecasts would change (and rate hikes expectations be swept off the table) if the UK deviates materially from this outlook and political crisis were to ensue.” The Bank of England voted by seven to two to leave the Bank rate at 0.5%, saying weak growth in Q1 was a temporary soft patch, with growth of 1.7% over the next three years expected, which it said will lead to modest and gradual pay rises.

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