BoE will wait until 2017 to hike interest rates

The Bank of England will not hike interest rates anywhere near as quickly as the US Federal Reserve, Citi´s chief UK economist said on Friday.

Yes, there are similarities between economic trends in the UK and US, but there are also several important differences, Michael Saunders explained in a research note sent to clients.

For starters, Britain´s economy faces much larger fiscal headwinds than the US.

As well, the drag on growth and inflation from the strength in sterling is much greater than that of the US dollar on the American economy.

Wages also grow more slowly in the UK than in the US for any given rate of unemployment, as the appreciation in sterling serves as a magnet for inflows of foreign workers.

Rate-setters at the BoE are also not at all swayed by so-called macro-prudential arguments for raising interest rates.

"We expect that in 2016 the MPC will continue to signal that the next move in rates is likely to be up, but – faced with modest growth and persistent low-flation – in practice will not see the triggers to act."