14 Nov 2013
Flash: Hawkish shift in BoE - RBS
FXstreet.com (Barcelona) - A more 'hawkish' shift than expected in the November Inflation Report, RBS Economists said.
Key Quotes
"The better labour market data have forced the MPC into a larger-than-expected forecast shift (for the unemployment rate, not CPI). We still view the BoE's forecasts as too 'pessimistic' – a 7% unemployment rate will be reached in Q1 2015 on our forecast, not Q3 2015 on the MPC's."
"Of course, it is the MPC which sets Bank Rate, and the Governor was keen to point out that a 7% unemployment rate is not a trigger for Bank Rate rises."
"Nevertheless, in reality, a faster decline in unemployment alongside above-target inflation (our expectation) is likely to force an earlier BoE policy response. We continue to forecast the first Bank Rate hike in Q3 2015, but the risks are tilted towards an earlier move (Q2 2015). "
The BoE's forward guidance is 'working' in so far as it does still provide some 'dovish' impact – without it we would typically have expected to see several dissenting votes within the MPC for Bank Rate rises by this point (given the growth and inflation forecasts)."
"The fundamental difficulties associated with economic forecasting – and, specifically, of trying to squeeze a flabby dovish monetary policy bias into the corset of an unemployment rate threshold – exposes ever more vividly the limitations of the BoE's 'explicit forward guidance'."
Key Quotes
"The better labour market data have forced the MPC into a larger-than-expected forecast shift (for the unemployment rate, not CPI). We still view the BoE's forecasts as too 'pessimistic' – a 7% unemployment rate will be reached in Q1 2015 on our forecast, not Q3 2015 on the MPC's."
"Of course, it is the MPC which sets Bank Rate, and the Governor was keen to point out that a 7% unemployment rate is not a trigger for Bank Rate rises."
"Nevertheless, in reality, a faster decline in unemployment alongside above-target inflation (our expectation) is likely to force an earlier BoE policy response. We continue to forecast the first Bank Rate hike in Q3 2015, but the risks are tilted towards an earlier move (Q2 2015). "
The BoE's forward guidance is 'working' in so far as it does still provide some 'dovish' impact – without it we would typically have expected to see several dissenting votes within the MPC for Bank Rate rises by this point (given the growth and inflation forecasts)."
"The fundamental difficulties associated with economic forecasting – and, specifically, of trying to squeeze a flabby dovish monetary policy bias into the corset of an unemployment rate threshold – exposes ever more vividly the limitations of the BoE's 'explicit forward guidance'."