12 Feb 2015
BoE inflation report to show dramatically lower inflation forecasts – BTMU
FXStreet (Barcelona) - Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, sees some risks that today’s BOE’s message might view the impact of lower oil prices further into the future as inconsequential, but expects the current and coming quarters to see a significant downgrade in inflation forecasts.
Key Quotes
“Let’s start with what we know with 100% certainty! – the BOE QIR will show dramatically lower inflation forecasts for the current and coming quarters.”
“The last report has 1.0% for Q1 and 1.1% for Q2, 1.2% in Q3 and 1.4% in Q4. However, the drop in oil prices may well also mean that real GDP growth projections will be increased. That may then feed into a profile for inflation that brings inflation rates back up to where they were in the last inflation report by the end of 2016 – the projection was 1.8% in Q4 2016.”
“we see some risk that the message from the BOE today will be that the energy price drop is very much transitory and that the inflation impact further into the future will be inconsequential. That was certainly what Governor Carney hinted at when he spoke in a speech in Dublin in January and if this is the signal given today it would put the BOE more in line with the attitude of the Fed toward energy price declines.”
“We still would not be surprised to see the BOE raise its key Bank Rate later this year and with the markets only fully priced for the first rate increase in Q1 2016, we see scope for expectations to shift forward.”
“The best way to play this in foreign exchange is to look for advances for the pound versus non-dollar currencies. EUR/GBP remains one line of least resistance. GBP/USD is unchanged since 5th January while EUR/USD is 5% lower.”
“The pound is increasingly being viewed in a similar way to the dollar with the BOE potentially following closely behind the Fed in starting a rate tightening cycle.”
Key Quotes
“Let’s start with what we know with 100% certainty! – the BOE QIR will show dramatically lower inflation forecasts for the current and coming quarters.”
“The last report has 1.0% for Q1 and 1.1% for Q2, 1.2% in Q3 and 1.4% in Q4. However, the drop in oil prices may well also mean that real GDP growth projections will be increased. That may then feed into a profile for inflation that brings inflation rates back up to where they were in the last inflation report by the end of 2016 – the projection was 1.8% in Q4 2016.”
“we see some risk that the message from the BOE today will be that the energy price drop is very much transitory and that the inflation impact further into the future will be inconsequential. That was certainly what Governor Carney hinted at when he spoke in a speech in Dublin in January and if this is the signal given today it would put the BOE more in line with the attitude of the Fed toward energy price declines.”
“We still would not be surprised to see the BOE raise its key Bank Rate later this year and with the markets only fully priced for the first rate increase in Q1 2016, we see scope for expectations to shift forward.”
“The best way to play this in foreign exchange is to look for advances for the pound versus non-dollar currencies. EUR/GBP remains one line of least resistance. GBP/USD is unchanged since 5th January while EUR/USD is 5% lower.”
“The pound is increasingly being viewed in a similar way to the dollar with the BOE potentially following closely behind the Fed in starting a rate tightening cycle.”