UK: Rate hikes are coming, but not likely till next year

That is the bottom line expected from Super Thursday when the Bank of England (BoE) simultaneously publishes its interest-rate decision, the minutes of its policy meeting, and the Quarterly Inflation Report forecasts (QIR). It will likely highlight that the economy looks stronger than it did three months ago. Growth bounced back to 0.7% QoQ in 2Q, slightly better than the central bank had projected. Productivity looks perkier. Faster supply growth could, in principle, mean weaker inflationary pressures. But probably not in this case as wage growth has picked up smartly too. 

The expansion seems to be gradually shifting onto a more sustainable footing. There are probably fewer reasons to think inflation will undershoot the 2% target in the medium term. Indeed, "some" members said in the July minutes that the risk of inflation rising above the target in the medium term had risen. 

"We do not expect the BoE to push back on the recent upward move in interest rates. Our call is for the first 25bp BoE hike in February next year, followed by hikes of the same magnitude in August and November," notes BofA Merrill Lynch.