4 Jun 2015
BoE MPC expected to hike rates in November 2015 – Danske
FXStreet (Barcelona) - Analyst at Danske Bank, Mikael Olai Milhøj, reviews the BoE policy decision and further maintains the outlook for a UK rate hike in November this year.
Key Quotes
“As expected, the Monetary Policy Committee (MPC) voted to maintain the Bank Rate and the stock of purchased assets at 0.50% and GBP375bn, respectively.”
“The minutes from the May meeting are released on 17 June. The June meeting was the first one where the MPC members had the opportunity to discuss the fact that UK is now officially in deflation (the annual percentage change in the consumer price index dipped just below zero in April).”
“The BoE has on several occasions stated that it was likely that inflation ‘could fall below zero’ so it is not a given that it affected the tone of the discussion at the meeting significantly.”
“Governor Mark Carney has previously stated that this is not ‘bad deflation’ but rather is good news. The reason is that it implies that the Britons are experiencing positive real wage growth for the first time since 2009, which should support the recovery.”
“We still expect the MPC to hike in November this year. Although the UK is in deflation, we think that the MPC members will judge that the medium-term inflation outlook calls for tighter monetary policy. It is important to remember that the low inflation is mainly due to falls in energy and food prices, which should begin to drop out at the end of this year. We expect inflation to reach around 1% at the end of this year and around 1.7% at the end of 2016.”
“As the MPC recognises that monetary policy works with a lag, the falls in energy and food prices alone cannot justify holding off from raising rates. That said, the very low inflation gives the MPC the opportunity to stay patient.”
Key Quotes
“As expected, the Monetary Policy Committee (MPC) voted to maintain the Bank Rate and the stock of purchased assets at 0.50% and GBP375bn, respectively.”
“The minutes from the May meeting are released on 17 June. The June meeting was the first one where the MPC members had the opportunity to discuss the fact that UK is now officially in deflation (the annual percentage change in the consumer price index dipped just below zero in April).”
“The BoE has on several occasions stated that it was likely that inflation ‘could fall below zero’ so it is not a given that it affected the tone of the discussion at the meeting significantly.”
“Governor Mark Carney has previously stated that this is not ‘bad deflation’ but rather is good news. The reason is that it implies that the Britons are experiencing positive real wage growth for the first time since 2009, which should support the recovery.”
“We still expect the MPC to hike in November this year. Although the UK is in deflation, we think that the MPC members will judge that the medium-term inflation outlook calls for tighter monetary policy. It is important to remember that the low inflation is mainly due to falls in energy and food prices, which should begin to drop out at the end of this year. We expect inflation to reach around 1% at the end of this year and around 1.7% at the end of 2016.”
“As the MPC recognises that monetary policy works with a lag, the falls in energy and food prices alone cannot justify holding off from raising rates. That said, the very low inflation gives the MPC the opportunity to stay patient.”