Back
6 Feb 2015
BoE might keep a low profile in terms of CPI inflation projections - RBS
FXStreet (Barcelona) - Ross Walker, Senior UK Economist at RBS, expects the Bank of England to keep a low profile in the coming months – literally in terms of their CPI inflation projections and figuratively as the 7 May general election approaches.
Key Quotes
“Although the MPC’s principal policy signal is the 2-3 year forecast range for CPI inflation, markets may well take their cue from a sharply lower near-term projection. Although this ought to be priced-in, the experience in November was that the sharply lower near-term profile prompted a dovish response in markets – it may be that markets have much more confidence around the near-term trajectory than they do about the 2-3 year horizon (where CPI is invariably close to the 2% target).”
“With the MPC’s GDP growth and, possibly, wage inflation projections likely to be trimmed (the latter in response to lower current inflation as new year pay deals are set), there are downside risks for the CPI projection at the 2-year point.”
“Whilst the broad policy signal from the Inflation Report will be ‘dovish’ – lessening the chances of a Bank Rate rise this year – the MPC does not seem content to let expectations for the first hike slip into the latter part of next year.”
“Any signalling in this context may be directed more at households than financial markets, to pre-empt any unwarranted re-leveraging.”
“More generally, as the 7 May 2015 election approaches the BoE is probably content to assume a lower public profile for a few months and avoid any political entanglements – the economy and labour mobility/immigration are the two most contentious political issues and the BoE is savvy enough to realise that there is little to be gained by wading into these debates at this juncture.”
Key Quotes
“Although the MPC’s principal policy signal is the 2-3 year forecast range for CPI inflation, markets may well take their cue from a sharply lower near-term projection. Although this ought to be priced-in, the experience in November was that the sharply lower near-term profile prompted a dovish response in markets – it may be that markets have much more confidence around the near-term trajectory than they do about the 2-3 year horizon (where CPI is invariably close to the 2% target).”
“With the MPC’s GDP growth and, possibly, wage inflation projections likely to be trimmed (the latter in response to lower current inflation as new year pay deals are set), there are downside risks for the CPI projection at the 2-year point.”
“Whilst the broad policy signal from the Inflation Report will be ‘dovish’ – lessening the chances of a Bank Rate rise this year – the MPC does not seem content to let expectations for the first hike slip into the latter part of next year.”
“Any signalling in this context may be directed more at households than financial markets, to pre-empt any unwarranted re-leveraging.”
“More generally, as the 7 May 2015 election approaches the BoE is probably content to assume a lower public profile for a few months and avoid any political entanglements – the economy and labour mobility/immigration are the two most contentious political issues and the BoE is savvy enough to realise that there is little to be gained by wading into these debates at this juncture.”