Zooming in on UK economy, BoE to hold until H2 2018 - Scotiabank

Analysts at Scotiabank explained that the UK growth has slowed and we expect a further deceleration over the remainder of the year, particularly centred on the consumer. 

Key Quotes:

"Sharply higher inflation and sluggish wage inflation have pushed household real disposable income growth into negative territory, crushing household consumption growth."

"While there is a glimmer of hope that investment and net trade could provide an offset, we remain glass half-empty on growth during 2017. We expect growth of just 1.6% y/y."

"The good news is that the headwinds to growth this year are likely to reverse next year. In particular, lower inflation and firmer wage inflation should help to push consumption growth higher next year."

"While 2018 should boast a better profile for quarterly GDP growth rates, the annual average is likely to be a lowly 1.1% y/y. Inflation surged to 2.9% y/y earlier in the year, but has since eased back to 2.6% y/y."

"We view this as a temporary pause for breath before resuming upwards traction into the autumn. We expect a peak of around 3% y/y. Thereafter we expect inflation to revert back towards the 2% target relatively swiftly."

"Although BoE language has turned more hawkish in recent weeks, with three dissenters for rate hikes, we expect muted wage inflation and pedestrian GDP growth to dissuade the Bank from raising Bank Rate this year. We expect the first hike to arrive in H2 2018."