BOE MPC Aims To Get CPI To Target Sooner; Early Hike On Cards>

-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 

similar. 

     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 

migration. 

     -London newsroom: e-mail: david.robinson@marketnews.com    

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