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12 Nov 2014
BOE’s QIR reinforcing current market rate expectations – RBS
FXStreet (Barcelona) - Ross Walker, Analyst notes that the November Inflation Report keeps the MPC's fulcrum in a 'dovish' position.
Key Quotes
“Most importantly, the CPI inflation central projection was essentially unchanged at the 3-year forecast horizon: 1.95% (vs 1.96% in August). Taking the average CPI forecast over the year to the Q4 2017 forecast horizon the November central projection stands at 1.92% vs 1.89% in August – a meaningless difference”
“The MPC lowered its unemployment rate projections but, most significantly, this did not result in any upward projection to the wage inflation projections. On the latter, the average weekly earnings data 'indicative projections' were unrevised at 1.25% y/y at end-2014 and 3.25% at end-2015. The 2016 projection was nudged down to 3.75% from 4.0%. Implicitly, to bring forward Bank Rate hikes, we would need to see wage inflation out-stripping these projections on a sustained basis”
“Net-net, the MPC's growth outlook has deteriorated slightly, though projections remain close to trend-rates (and above our own expectations: 2.3% in 2015, 2.0% in 2016).”
“Of course, this policy signal is conditional on the MPC's forecasts – if the economy looks stronger or if wage pressures emerge more quickly or more strongly than forecast then the policy bias will shift.”
“Overall, the key policy signal is still found in the CPI forecast across the 2-3 year forecast, and this comes about as close as it could to validating current market rate pricing. The RBS forecast remains for the first 25bp hike to come in August 2015.”
Key Quotes
“Most importantly, the CPI inflation central projection was essentially unchanged at the 3-year forecast horizon: 1.95% (vs 1.96% in August). Taking the average CPI forecast over the year to the Q4 2017 forecast horizon the November central projection stands at 1.92% vs 1.89% in August – a meaningless difference”
“The MPC lowered its unemployment rate projections but, most significantly, this did not result in any upward projection to the wage inflation projections. On the latter, the average weekly earnings data 'indicative projections' were unrevised at 1.25% y/y at end-2014 and 3.25% at end-2015. The 2016 projection was nudged down to 3.75% from 4.0%. Implicitly, to bring forward Bank Rate hikes, we would need to see wage inflation out-stripping these projections on a sustained basis”
“Net-net, the MPC's growth outlook has deteriorated slightly, though projections remain close to trend-rates (and above our own expectations: 2.3% in 2015, 2.0% in 2016).”
“Of course, this policy signal is conditional on the MPC's forecasts – if the economy looks stronger or if wage pressures emerge more quickly or more strongly than forecast then the policy bias will shift.”
“Overall, the key policy signal is still found in the CPI forecast across the 2-3 year forecast, and this comes about as close as it could to validating current market rate pricing. The RBS forecast remains for the first 25bp hike to come in August 2015.”