Trial now

Needle Still Points South


Yields Bounce as Equities Make New Monthly Highs


Heading North


Bull Rally Accelerates


Economists Survey Raises 2021 CPI Forecast To 4.9%

-BOE MPC Voted 9-O For Unchanged Policy But Signals Earlier Tightening
     By David Robinson and Jamie Satchithanantham                                  
     LONDON (MNI) - The Bank of England Monetary Policy Committee voted 
unanimously for unchanged policy at its February meeting but made clear 
that it now wanted to get inflation back to target in two years rather 
than the three year goal it had focussed on since the June 2016 European 
Union referendum. 
     With the Bank's February Inflation Report (IR) showing headline 
inflation holding above the 2.0% target throughout the three year 
forecast horizon, the MPC made clear that more and earlier tightening 
would be required than previously expected. 
     The MPC's mandate allows it to take longer to get inflation back to 
target in exceptional circumstances, but the committee has now set this 
aside and is aiming to get it back on track over its traditional two 
year horizon. 
     The MPC stated that if the economy evolved as expected "monetary 
policy would need to be tightened somewhat earlier and by a somewhat 
greater degree over the forecast period than anticipated at the time of 
the November (Inflation) Report," the minutes stated. 
     The November IR showed Bank Rate rising to 0.7% in Q3 2018 and 0.8% 
in Q1 2019 and the February IR profile was similar, with Bank Rate 
rising from 0.6% in Q3 to 0.8% in Q1. The implication of the MPC stating 
that the November rate curve was too low is that as the February curve 
is similar it too is too low. 
     Headline CPI inflation was shown at 2.28% in Q1 2019, 2.16% in Q1 
2010 and 2.11% in Q1 2021. 
     The February IR contained the results of the Bank's annual supply 
side stock take. It concluded that there was "very limited" slack left 
and that the output gap would turn negative in Q1 2021. 
     With potential growth unrevised at 1.5% the IR growth forecasts 
suggest expected growth in inflationary territory.  On market rates four 
quarter GDP growth was projected at 1.77% in Q1 2019, 1.66% in Q1 2020 
and 1.68% in Q1 2021. 
     The near term growth forecasts were nudged up from their November 
predecessors due to robust global growth, but the profile was pretty 
     The equilibrium, or non-inflationary, jobless rate was revised down 
to 4.25% from 4.5% with joblessness expected to stick close to it, 
hitting 4.2% in Q2 2018 and 4.1% in Q3 2019 and staying at 4.1% until 
the first quarter of 2021. 
     Four quarter average weekly earnings growth was nudged up to 2.5% 
from 2.25% in the fourth quarter of last year, and then projected to 
rise to 3.0% in Q4 2018 and 3.25% in Q4 2019 and 3.5% in Q4 2020, which 
would see a return to real income growth. 
     One downside inflation risk cited in the IR was weaker than 
expected growth, with some softness seen in business surveys. An upside 
risk was even faster earnings growth in light of labour market 
tightness, with widespread skill shortages and markedly reduced net 
     -London newsroom: e-mail:    
[TOPICS: M$B$$$,M$$BE$,MT$$$$]