Barclays pushes back BoE rate hike call to end-2016

The Bank of England will wait until the last quarter of 2016 before increasing Bank Rate for the first time, due to the multiple risks the British economy was now facing, easing economic activity and the lack of price pressures, Barclays said.

Those risks included greater downside potential to the global outlook and ‘timing’ risks around the EU referendum.

Indeed, the possibility even existed that the Bank might not raise rates at all over the coming year, the investment bank's research team said.

Under their new scenario, Barclays's analysts said the BoE would be looking to increase rates every six months, using the time in between each hike to gather information and if necessary re-evaluate how to proceed.

Nevertheless, their ‘call’ continued to be ahead of the May 2017 lift-off date in rates which markets were then pricing in.

“We expect the assessment in the February inflation report to help underpin valuations in the short end of the curve as the diminished prospects for imminent tightening are effectively validated.

“We are likely reaching the limits to how far the first hike is pushed out as, historically, this peaked at 18 months in Q1 15 just as the oil price first declined sharply,” analysts Philippe Gudin, Francois Cabau, Andrzej Szczepaniak, Moyeen Islam, Hamish Pepper and Nikolaos Sgouropoulos said in a research report sent to clients.