That was not a surprise yesterday, the BoE held rates unchanged at 0.25% and the asset purchase target will be kept at £435 billion. 10 billion of corporate bonds will also be purchased but this does not change from what was previously decided.
However, the British central bank slashed its growth forecasts expectations to 1.7% for this year from 1.9%. Policymakers underlined concerns about consumer spending growth which is too slow to drive growth higher. On top of that, Brexit negotiations outcome remain uncertain and the investment levels should likely diminish on those fears.
We still consider that the Brexit vote has had, for the time being a good consequence by lowering the pound value which is why we should see inflation heading towards, probably in October. It is definitely clear that it is clear that the sterling decline accounts for the growing inflation. By the way, forecasts for 2018 have been raised to 2.5% from 2.4%. After 2019, inflation forecasts are expected to hold higher than the BoE target. This should likely trigger at some point a rate hikes – Two are saying BoE policymakers. We remain bullish on the pound as in our view, markets are still overestimating the Brexit effect.
By Yann Quelenn