FXStreet (Barcelona) - The Research Team at Goldman Sachs explain that BoE has more room than other G10 central banks to look through the temporary fall in headline inflation, and with inflation expectations remaining well anchored UK might see more rate hikes than what is currently priced into the market.
Key Quotes
“We expect the BoE to start hiking rates by the end of this year.”
“Like the Fed, the Bank of England stands apart from the growing group of G10 central banks that have recently eased (and indeed may ease further) in that it is looking toward tightening monetary policy.”
“The fall in oil, as well as declines in other commodities, is having an asymmetric impact on monetary policy across the G10. For the ECB and the BoJ, the low inflation starting point, structural weakness in inflation, and the fragility of inflation expectations mean that there is little room to look through temporary falls in inflation.”
“Commodity producers Canada and Australia are experiencing not only lower inflation but deteriorations in their terms of trade, with associated negative impacts on national income, investment and employment.”
“In contrast, the Bank of England – as well as the Fed – has a more favourable inflation starting point, and is enjoying robust growth and improving labour market conditions.”
“This provides the BoE room to look through the temporary fall in headline inflation to a greater extent than other G10 central banks, and, conditional on inflation expectations remaining well-anchored, this suggests faster rate hikes than are currently priced into the market.”
Key Quotes
“We expect the BoE to start hiking rates by the end of this year.”
“Like the Fed, the Bank of England stands apart from the growing group of G10 central banks that have recently eased (and indeed may ease further) in that it is looking toward tightening monetary policy.”
“The fall in oil, as well as declines in other commodities, is having an asymmetric impact on monetary policy across the G10. For the ECB and the BoJ, the low inflation starting point, structural weakness in inflation, and the fragility of inflation expectations mean that there is little room to look through temporary falls in inflation.”
“Commodity producers Canada and Australia are experiencing not only lower inflation but deteriorations in their terms of trade, with associated negative impacts on national income, investment and employment.”
“In contrast, the Bank of England – as well as the Fed – has a more favourable inflation starting point, and is enjoying robust growth and improving labour market conditions.”
“This provides the BoE room to look through the temporary fall in headline inflation to a greater extent than other G10 central banks, and, conditional on inflation expectations remaining well-anchored, this suggests faster rate hikes than are currently priced into the market.”
