Investors push back Bank of England rate hike expectations on Scotland worries - analysts
By Jemima Kelly
LONDON (Reuters) - Investors pushed back expectations of when the Bank of England will raise interest rates on Monday after a poll showed the pro-Scottish independence camp with a lead for the first time.
With just 10 days to go before a referendum that could see the end of a three-century-old union with the rest of the UK, a YouGov survey for the Sunday Times newspaper put the "Yes" to Scottish independence campaign at 51 percent, against those who intended to vote "No" at 49 percent.
The sterling overnight interbank average (SONIA) rates showed the market had pushed back its forecast of a UK rate hike to seven months' time, compared with its expectation of six months' time last week. That throws into doubt the idea of a rate hike in the first quarter.
"Definitely the market is pushing back rate hikes because it's reacting to the idea that increased uncertainty over the future of Scotland could give the MPC (Bank of England Monetary Policy Committee) reason to delay a hiking cycle," said Jamie Searle, UK rates interest rates strategist at Citi.
"But (BoE Governor Mark) Carney may, over the next couple of days, remind us why they're thinking about hiking rates in the first place."
Carney is scheduled to speak this week. Last month he poured cold water on the view that the BoE might raise rates sooner rather than later, given subdued wage inflation.
That, as well as increasing uncertainty over whether Scotland will split off from the rest of the UK, has seen sterling drop by over 10 cents from a near six-year high less than two months ago of $1.7192 to trade around $1.6110.
Vatsala Datta, a UK rates strategist at RBC Capital Markets, said that rate hike expectations could potentially be pushed back further, but said that Monday's moves might be more of a knee-jerk reaction.
"If polls keep showing this kind of behaviour… investors are going to push rate hike expectations later into 2015 or even later but I think it's too early to conclude that is the case at the moment," she said.
"It's more of a panic scenario right now, where people buy the front end of the curve."
(Reporting By Jemima Kelly; Editing by Anirban Nag)
