- BoE in no hurry to raise rates
- referendum Brexit to dominate the proceedings
- price of low energy - a friend or foe to the British economy
- key support Pound remains close to £ 1.4800
2015 Review
This was something of a turnaround year for the UK where unemployment fell to levels pre financial crisis, wage growth has accelerated and the decline in energy prices and food supported a strong recovery driven by consumption.
growth has cooled somewhat in 2015 after peaking at 3.2% in mid-2014, but this was to be expected in a context of slower global growth, a slow recovery in the euro area - the largest export market of the United Kingdom -. and a strong book that has created great challenges for British manufacturers
However, the economic recovery has never been under threat and the country continued to grow at a pace that many of his neighbors can not dream.
Despite this, the Bank of England is in no hurry to raise interest rates and the inflation report in November indicated that the tightening cycle may not begin for 12 months, despite suggesting only in July that it would be reviewed at the end of the year.
When you consider the headwinds facing the economy of the United Kingdom in 2016, it is understandable that the central bank may want to be cautious before increasing interest rates for the first time since July 07 there are years, eight and a half years.
Expectations for 2016
As previously noted, the UK economy faces a number of headwinds in 2016, including some have the potential to derail what has been until now a robust recovery. Having said that, rather than threatening the recovery, I think these events will rather keep in check while allowing it to tick along nicely.
Brexit
In an attempt to stave off the growing popularity of the right wing against the EU UK Independence Party, Conservative leader David Cameron has promised to hold a referendum on EU membership by the end of 2017, he was re-elected. Since the Conservatives won an absolute majority in the election in May this year, Cameron was in talks with his EU counterparts in order to reach an agreement that will satisfy the British electorate and protect the interests from the country.
It is believed that an agreement can be reached in February 2016 that will allow Cameron to hold a referendum that was well before the deadline, set head of the election. The advantage of this is that it eliminates a significant amount of uncertainty surrounding the UK economy much earlier than expected. The possible ramifications that "Brexit" could have substantial data that nearly half of British exports to the euro area. There are also a number of large companies who consider EU membership a key advantage of doing business in the UK. If "Brexit" become a reality, these companies may consider relocation and take thousands of jobs with them.
fiscal tightening
British Chancellor George Osborne may have been given a welcome flexibility in the final declaration autumn which allowed him to rule in one part of fiscal tightening that will be required to eliminate the deficit by the end of this Parliament, but austerity is always inevitable in 2016.
Although I think the economy is well positioned to withstand a tightening strings of the public purse, it will almost certainly weigh a bit on the short-term economic growth and give the BoE another reason to hold off on raising interest rates to avoid inflicting pain unnecessary extra.
BoE rate hike
in the last inflation report from the BoE in November, Governor Mark Carney hit a tone much more conciliatory than he previously, suggesting that a rate hike may not come for 12 months. Since its previous "guidance" in July indicated that an increase would be considered at the turn of the year, it is clear that the BoE is much less confident in the ability of the economy to withstand storms and inflation return to 2% over the medium term.
That said, I am not convinced that the BoE will actually wait until next year to raise interest rates. The unemployment rate in the UK is very low, slack in the labor market is deteriorating rapidly and wages are growing. Combined with the decline of the last year in the prices of basic goods in annual comparison of inflation and an easing of the strength of the book, I think that inflation could rise faster than the BoE is currently to anticipate.
If the lifting of the Federal Reserve interest rate in December without any detrimental effect on the US economy, it can give confidence to the BoE to move to the middle of next year to avoid too rapid inflation and perhaps exceeded its target of 2%.
global slowdown
global slowdown, particularly in emerging markets, is one of the factors highlighted by Carney in the latest report on inflation as a risk to the British economy. The slow recovery in the euro zone could continue to hamper British manufacturers in 2016, especially if the euro weakens further on the back of more stimulus from the ECB.
Energy prices
A tailwind possible for the UK economy in 2016 is likely to be persistently low energy prices have supported the resumption of strong consumer driven this year. Disposable income has been on the rise this year, wage growth has far exceeded inflation. With inflation seen rising this year, while remaining well below the 2% target for the BoE, the gap can not grow as fast as it did this year and may even decrease slightly. That said, consumers should continue to feel better, especially if wage growth continues to accelerate as it has much of this year.
Conclusion
All things considered, I think the British economy will continue to grow at around 2-3% next year, which will be sufficient to continue to support stable employment and wage growth. Meanwhile, inflation is expected to recover significantly decline from last year in the price of energy is out of the annual comparison. This could be assisted by a relaxation of the strength of the book which added to deflationary pressures this year.
In this context, and assuming that the rate increase of the Federal Reserve System in December does not derail the recovery in the US, I think the BoE may feel more comfortable with the increase in interest rates during the third quarter of next year, pending the outcome of the referendum on the EU.
Technical analysis
Cable has been grinding lower throughout the second half of 2015 and at the moment is showing few signs of easing. He scored his first close below 1.50 - a psychologically important level - for the first time since April, last week, and the weekly candle was a marabuzo looking very bearish. The pair may find further support around 1.48 with her having been the key in 2013 and early 2010. Here are below the low of 1.4550 this year will be an important support level and a break this is very bearish, which could open a back to May 2010 low of 1.4230. A move above descendant he is currently in channel suggests the pair took a more optimistic twist and cause a movement back towards 1.60 level it traded around since 09.
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