Despite an improvement in GDP growth in the U.K. for the three months ended June 30, a skittish set of data over the past few quarters and low inflation means money management executives still believe a hike in interest rates will not come until 2016.
Estimated growth for the U.K. economy was 0.7% for the three months ended June 30, said figures released by the Office for National Statistics on Tuesday. That was an improvement from the previous quarter, with 0.4% growth. It was also an improvement from the second quarter of 2014.
While money managers were positive on the strong performance, they do not expect the Bank of England to begin tightening until early next year.
“The Bank of England will take this data as further signs that the British economy is healthy enough for a rate rise,” said Nandini Ramakrishnan, global market strategist at J.P. Morgan Asset Management (JPM), in a statement. “The central bank is not likely to rush into a rate-hiking cycle given just this one release.”
Ms. Ramakrishnan cited a Monetary Policy Committee meeting last week, when members unanimously voted to keep rates steady at 0.5%. “But after successive quarters of expansion and (Bank of England Governor) Mark Carney’s concern that starting the hikes later would mean a faster pace, the case for liftoff is mounting. We still believe the first interest rate increase will be closer to 2016 than to now.”
Anna Stupnytska, global economist at Fidelity Worldwide Investment, said in a statement that the composition of growth was skittish, with the services sector being the main driver, while manufacturing contracted and construction growth was flat. “So while the growth pace is decent, the uneven nature of the recovery suggests that the Bank of England can afford to wait for a bit longer before hiking rates.”
Azad Zangana, Schroders’ senior European economist, said in a statement that the firm expects the Bank of England to “hold fire until early next year, as inflation is currently too low.”