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Thursday, July 21, 2011 4:03:51 PM
The Bank of England Is Not Budging
* Thursday, July 21, 2011
The dovish tone at the Bank of England (BoE) is not abating – the BoE will be on hold through 2012.
The minutes of the July 7 Monetary Policy Committee (MPC) meeting confirmed that a 7-2 majority is willing to keep the base rate at 0.5% and will allow inflation to continue to overshoot the target. Headline inflation may not peak until it reaches about 5%. Blame remains focused on temporary shocks and disturbances, the most important of which have been indirect taxes and lagged effects from the depreciation of the pound. This stance is in sharp contrast to the inflation-fighting hikes implemented by the ECB. Rather, the MPC concluded that downside risks to inflation dominate the upside risks. Pass-through of inflation and inflation expectations to wages has been muted, with private sector annual pay growth of just 1.8% through April and private sector wage settlements up 2.1% through May. The MPC was concerned about weak consumer demand and confidence, caused by the high cost of consumer credit and elevated bank borrowing costs. The bottom line view was that “Overall […] recent developments had reduced the likelihood that a tightening in policy would be warranted in the near term.” Market expectations are for a rate hike in the first half of 2012. We doubt that the policymakers will live up to that. Rates are more likely to remain on hold through next year as fiscal drag kicks in.
http://www.bcaresearch.com/public/story.asp?pre=PRE-20110721.GIF
George.
Click on "In reply to", for Authors past commentaries.
* Thursday, July 21, 2011
The dovish tone at the Bank of England (BoE) is not abating – the BoE will be on hold through 2012.
The minutes of the July 7 Monetary Policy Committee (MPC) meeting confirmed that a 7-2 majority is willing to keep the base rate at 0.5% and will allow inflation to continue to overshoot the target. Headline inflation may not peak until it reaches about 5%. Blame remains focused on temporary shocks and disturbances, the most important of which have been indirect taxes and lagged effects from the depreciation of the pound. This stance is in sharp contrast to the inflation-fighting hikes implemented by the ECB. Rather, the MPC concluded that downside risks to inflation dominate the upside risks. Pass-through of inflation and inflation expectations to wages has been muted, with private sector annual pay growth of just 1.8% through April and private sector wage settlements up 2.1% through May. The MPC was concerned about weak consumer demand and confidence, caused by the high cost of consumer credit and elevated bank borrowing costs. The bottom line view was that “Overall […] recent developments had reduced the likelihood that a tightening in policy would be warranted in the near term.” Market expectations are for a rate hike in the first half of 2012. We doubt that the policymakers will live up to that. Rates are more likely to remain on hold through next year as fiscal drag kicks in.
http://www.bcaresearch.com/public/story.asp?pre=PRE-20110721.GIF
George.
Click on "In reply to", for Authors past commentaries.
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