First rate hikes getting closer, but pace of tightening to be slow

Recent developments suggest that the Bank of England and, perhaps, the US Federal Reserve may make their first rate hikes a little sooner than we had expected a month or two ago. However, global monetary conditions are set to remain exceptionally loose for at least two more years. The pace of rate hikes in the US and the UK is likely to be slow by historical standards while the ECB and Bank of Japan may yet loosen policy further. That said, the Fed is likely to raise rates more rapidly than the Bank of England, leading to a significant divergence in rates during 2016.