James Knightley, Senior Economist at ING, reviews BOE’s inflation report, and comments that the central bank has expressed willingness to expand its QE or cut bank rates from current 0.5% level on any downside threat to inflation.
Key Quotes
“The Bank of England's Inflation Report backs up current market pricing of limited and gradual monetary policy tightening in coming years. Interestingly, they also suggest a willingness to offer more stimulus should downside risks to inflation emerge, stating that they could decide to expand QE or even cut Bank rate from its current 0.5% level.”
“Previously, the BoE had indicated that 0.5% was effectively the floor, but because the UK's “banking sector is operating with substantially more capital now than it did in the immediate aftermath of the crisis” there is greater scope for lower rates.”
“The BoE take the view that there is less chance of “undesirable effects” on credit supply. This greater emphasis on two way risk for monetary policy clearly suggests steady policy for some time to come.”
“In terms of the outlook for inflation there is another acknowledgement that it “could temporarily turn negative”. Nonetheless, the BoE state that it is “likely to rebound around the turn of the year” as energy and food price base effects drop out of the annual calculation.”
“They also note that slack in the labour market is shrinking and wages are rising.”
“As a result, based on market pricing of interest rates, the Bank sees inflation at 2% in 2 years' time.”
Key Quotes
“The Bank of England's Inflation Report backs up current market pricing of limited and gradual monetary policy tightening in coming years. Interestingly, they also suggest a willingness to offer more stimulus should downside risks to inflation emerge, stating that they could decide to expand QE or even cut Bank rate from its current 0.5% level.”
“Previously, the BoE had indicated that 0.5% was effectively the floor, but because the UK's “banking sector is operating with substantially more capital now than it did in the immediate aftermath of the crisis” there is greater scope for lower rates.”
“The BoE take the view that there is less chance of “undesirable effects” on credit supply. This greater emphasis on two way risk for monetary policy clearly suggests steady policy for some time to come.”
“In terms of the outlook for inflation there is another acknowledgement that it “could temporarily turn negative”. Nonetheless, the BoE state that it is “likely to rebound around the turn of the year” as energy and food price base effects drop out of the annual calculation.”
“They also note that slack in the labour market is shrinking and wages are rising.”
“As a result, based on market pricing of interest rates, the Bank sees inflation at 2% in 2 years' time.”
