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14 May 2014
Sterling falls as BoE's Inflation Report disappoints investors
FXStreet (Łódź) - In its Quarterly Inflation Report, released on Wednesday, the Bank of England suggested that rates would stay low for at least one more year. Once they start rising, the process will be only gradual. It acknowledged the improvement in UK economy but pointed to the need to absorb more slack.
BoE growth and inflation forecasts almost unchanged, unemployment seen falling at quicker pace
The GDP growth forecast for 2014 remained unchanged at 3.4%, while the prediction for 2015 was hiked to 2.9% from 2.7%. The BoE also maintained its inflation outlook, stating that in two years time CPI should remain just below the 2% target, if interest rates start rising in the second quarter of 2015.
As far as unemployment is concerned, the BoE sees it around 5.25-5.75% in three years time. The MPC believes that this wouldn't create price pressures as the long time unemployed gradually return to the workforce. The BoE added that currently labor market slack was in the range of 1.0-1.5% of GDP.
"The path of slack is uncertain, and there is a range of views on the Committee. For a given growth profile, it will depend heavily on the timing and strength of the rebound in productivity growth," the BoE said.
RBS analysts believe that “those market participants expecting a more marked 'hawkish' shift, perhaps in response to evidence of labour market tightening, will be disappointed.”
“The MPC's forecasts and the general tone of the Report suggest the BoE is minded to proceed cautiously and is reluctant to give any indication that it is minded to withdraw monetary policy stimulus in any pre-emptive fashion.”
Carney signals rates to remain low for longer
At the press conference following the release the Quarterly Inflation Report BoE Governor Mark Carney confirmed that interest rates would increase when the UK economy returned to normal and that the rise would be "gradual and limited.”
Carney also warned that the recent strengthening of the sterling could challenge the balance of the UK economic expansion. He stressed that the expansion couldn't continue basing only on consumption but had to be boosted by an improvement in net exports.
Carney also commented on the housing market, stressing that monetary policy is not the “right tool” for dealing with a possible housing bubble.
GBP falls to 1-month low
The sterling dropped to a 1-month low to 1.6757 against the greenback, after trading higher for much of the session and hitting a high of 1.6874.
BoE growth and inflation forecasts almost unchanged, unemployment seen falling at quicker pace
The GDP growth forecast for 2014 remained unchanged at 3.4%, while the prediction for 2015 was hiked to 2.9% from 2.7%. The BoE also maintained its inflation outlook, stating that in two years time CPI should remain just below the 2% target, if interest rates start rising in the second quarter of 2015.
As far as unemployment is concerned, the BoE sees it around 5.25-5.75% in three years time. The MPC believes that this wouldn't create price pressures as the long time unemployed gradually return to the workforce. The BoE added that currently labor market slack was in the range of 1.0-1.5% of GDP.
"The path of slack is uncertain, and there is a range of views on the Committee. For a given growth profile, it will depend heavily on the timing and strength of the rebound in productivity growth," the BoE said.
RBS analysts believe that “those market participants expecting a more marked 'hawkish' shift, perhaps in response to evidence of labour market tightening, will be disappointed.”
“The MPC's forecasts and the general tone of the Report suggest the BoE is minded to proceed cautiously and is reluctant to give any indication that it is minded to withdraw monetary policy stimulus in any pre-emptive fashion.”
Carney signals rates to remain low for longer
At the press conference following the release the Quarterly Inflation Report BoE Governor Mark Carney confirmed that interest rates would increase when the UK economy returned to normal and that the rise would be "gradual and limited.”
Carney also warned that the recent strengthening of the sterling could challenge the balance of the UK economic expansion. He stressed that the expansion couldn't continue basing only on consumption but had to be boosted by an improvement in net exports.
Carney also commented on the housing market, stressing that monetary policy is not the “right tool” for dealing with a possible housing bubble.
GBP falls to 1-month low
The sterling dropped to a 1-month low to 1.6757 against the greenback, after trading higher for much of the session and hitting a high of 1.6874.