HSBC sees two UK interest rate hikes by end-2018

LONDON: HSBC, one of Britain's "Big Four" banks, expects the Bank of England to raise interest rates twice over the coming 12 months, having previously seen rates staying at their record lows until the end of 2018.

The bank said on Monday it expected rates to be lifted by 25 basis points in November and then again in May 2018, taking Britain's benchmark interest rate to 0.75 percent.

"The Bank of England's MPC minutes in September were hawkish, but the subsequent comments from former doves Mark Carney and Jan Vlieghe appear to have sealed the deal," wrote HBSC economist Elizabeth Martins in a note to clients.

As a result of its new BoE forecasts as well as other "cyclical forces", HSBC said it was revising its year-end sterling forecast by a full 15 cents to $1.35.

It also said it no longer saw the euro reaching parity with the pound, which it had previously expected to happen by year-end. It now sees sterling at 89 pence per euro by the end of 2017, and at 95 pence by end-2018.

"The Bank of England's unexpected hunger to join other G10 central banks in the race to the exit from accommodative monetary policy has given additional impetus to sterling, a currency that has happily ignored the political intrigue of Brexit throughout 2017," wrote HSBC's global head of currency research, David Bloom.

Sterling recorded its strongest week in more than eight years last week, with an almost 3 percent climb against the dollar to above $1.36, after the BoE said rates were likely to rise in the "coming months".

HSBC said it expected sterling to be weighed down by political uncertainty around Brexit next year, a factor that it said was "now playing second fiddle to the possibility of a cyclical rate rise". It expects the currency to dip to $1.26 by the end of 2018.