UBS erases UK interest rate call in 2018 after weak data

FILE PHOTO: The logo of Swiss bank UBS is seen in Zurich, Switzerland November 10, 2016. REUTERS/Arnd Wiegmann

LONDON (Reuters) - UBS said on Friday it does not expect the Bank of England to raise interest rates any more this year after weaker-than-expected growth figures slashed market expectations of monetary tightening in May.

“We view the [economic] slowdown as more serious, and see no prospect of hikes in 2018E,” the world’s largest wealth manager said in a note.

Before Friday’s growth data, UBS expected one rate hike for 2018 to happen next month but that “window had closed” said John Wraith, an economist at the bank.

He added that inflation could fall back to the central bank’s target of 2 percent later this year and Brexit concerns could resurface.

Market expectations of a rate hike in May tumbled to 20 percent from around 50 percent before the GDP data which showed Britain’s economy slowed much more sharply than expected in the first three months of 2018.

The market is now pricing in less than one 25 basis point rate hike over the remainder of 2018 from a near certain two rate hikes a fortnight ago.

Reporting by Tom Finn and Saikat Chatterjee