BoE decision, Inflation Report - Analysts react

Alexander Bueso Sharecast | 02 Feb, 2017 16:35 | | |

carney-july2016

"The minutes show that most MPC members remain willing to “seek to return inflation to the target over a somewhat longer period than usual” so that monetary policy can support the economy. Admittedly, the Committee no longer expects the economy to slow much this year; it raised its forecast for GDP growth in 2017 to 2%, from 1.4% in November. But its forecast for GDP growth to slow to 1.6% in 2018 shows that it is still more concerned about the medium-term outlook than before the referendum. [...] The core view at the Bank remains that domestically-generated inflation, especially wage growth, will remain too weak to justify raising rates over the next year, a view we share." - Samuel Tombs, Pantheon Macroeconomics

"We remain of the view that monetary policy will remain unchanged over our forecast horizon. The Committee is still trading off between downside risks to growth and upside risks to inflation and we do not believe data at this stage provide sufficient clarity to resolve that dichotomy. Furthermore, recent statements by Committee members imply a rather compact MPC as the more dovish and the more hawkish members have moved closer to the central consensus. A diverging view would have to be expressed by individual members to upset the status quo, which is a process that could take some time and require further data." - Andrzej Szczepaniak, Philippe Gudin, Fabrice Montagne, Barclays Research

"An important factor in the Bank of England’s analysis is that while demand is expected to be higher (particularly in 2017), the Bank also believes that the economy’s supply side is stronger than they previously believed. In particular, the Bank now believes that the natural rate of unemployment is now 4.5% rather than 5%. It should be noted though that these forecasts are based on market interest rate expectations - and these are higher than in November, pointing to a small tightening of monetary policy in 2018 and 2019." - Dr. Howard Archer, IHS Markit

"Of course, the outlook for policy is extremely uncertain at present, and the Governor provided three key judgements to be monitored [...] Note that the minutes suggested that some MPC members had moved a little closer to the “limits of their tolerance” toward above-target inflation. As a result, while we have penciled in a rate rise in Q4 2018, it may not be long before one or two members begin to vote to raise interest rates. And if our above-consensus forecast for GDP growth of 2.5% in 2018 proves correct, it is possible that we see rates rise even sooner." - Paul Hollingsworth, Capital Economics

"The most obvious downside risk to Bank of England’s upgraded growth projections comes from the possibility that British companies could lose their right to export services to the EU after Brexit. These exports account for 5% of the UK’s GDP, bigger than a breadbox, and the loss of half of this market would cause a British recession. British employers have so far refrained from moving operations from the UK to the continent in anticipation of Brexit, an understandable business strategy given that Europe’s labor market protections make firing and hiring workers expensive. But if Brexit convinces British employers that they cannot serve EU customers from within the UK, those staffing changes seem unavoidable. If that were to occur, the BoE could be expected to restart its quantitative easing program." - Bill Adams, PNC Financial Services

"Markets have priced in a 40% probability of a hike this year, which we think is too hawkish. A full hike is priced in around October next year. We still expect GBP crosses to remain volatile in the near term and think GBP will face renewed pressure in coming months as the UK moves towards triggering Article 50 and exiting the EU. As we think markets price BoE too hawkishly, there is also little support for GBP from relative rates from here." - Danske Bank

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