China fears and EU vote could derail plans to raise interest rates in 2016

 
Chris Papadopoullos
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The BoE's first UK interest rate hike could be delayed be until 2017 (Source: Getty)
The first UK interest rate hike could be delayed be until 2017 due to the uncertainty created by an in-out referendum on Britain’s EU membership, economists have said.

Investment bank Citi yesterday said it was slashing its global growth rate forecasts and shifted its prediction for the first Bank of England rate hike to final three months of 2016 from the first three months due to a gloomier outlook for China.

However, economists at UBS, another investment bank, have suggested that uncertainty over an EU referendum could throw off any plans to raise rates.

Unless there is any major swing in polls toward an “in” vote, UBS economists anticipate a great deal of uncertainty in the months running up to the vote, which must be announced with at least four months notice.

They also predict that the referendum will be held in October 2016, behind predictions for an April poll, as they anticipate the UK’s negotiation for EU concessions will take longer than expected.

With markets currently expecting the first rate hike around August next year, an October vote could generate enough uncertainty to postpone it until the end of 2016 or even 2017.

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