21 Jan 2015
BoE dissenters back in the fold – ING
FXStreet (Barcelona) - James Knightley, Senior Economist at ING, shares that the Martin Weale and Ian McCafferty, the two BOE members favouring a 25bp rate hike dissented from their stance and voted against a rate hike citing the plunge in CPI.
Key Quotes
“The big story is that Martin Weale and Ian McCafferty switched from voting for a 25bp rate rise to voting for no change due to the plunge in CPI. They admitted it was a “finely balanced” decision “driven largely by temporary factors”. Nonetheless “they noted the risk that low inflation might persist for longer than the temporary factors implied and concluded that this risk would be increased by an increase in Bank Rate at the current juncture”.”
“Interestingly, the BoE acknowledged that the “risks to CPI inflation in the medium term might have, if anything, shifted to the upside, but all members were also alert to the downside risk of current low inflation becoming entrenched”.”
“The MPC suggested that there was a “roughly even chance” of CPI falling below zero given what was happening to food and fuel prices. As such, we are likely to see stable policy for quite a few more months.”
“As for today’s labour data there was some good news with unemployment falling to 5.8% (the lowest since August 2008) from 6%, which is better than the 5.9% figure expected.”
“Wages rose pretty much in line with expectations with total pay rising 1.7% on a 3M/YoY% basis versus 1.4% previously. Excluding bonuses the figure rose to 1.8% from 1.6%. With CPI inflation currently at just 0.5% it shows that real incomes are starting to move in a positive direction.”
“We expect the labour market to continue strengthening through 2015, but not at the same rate as seen over the past couple of years.“
“So, while CPI inflation remains low for now, we see medium term price pressures starting to build – just as the BoE hinted into today’s minutes. Consequently, a rate hike later this year still looks probable to us..”
Key Quotes
“The big story is that Martin Weale and Ian McCafferty switched from voting for a 25bp rate rise to voting for no change due to the plunge in CPI. They admitted it was a “finely balanced” decision “driven largely by temporary factors”. Nonetheless “they noted the risk that low inflation might persist for longer than the temporary factors implied and concluded that this risk would be increased by an increase in Bank Rate at the current juncture”.”
“Interestingly, the BoE acknowledged that the “risks to CPI inflation in the medium term might have, if anything, shifted to the upside, but all members were also alert to the downside risk of current low inflation becoming entrenched”.”
“The MPC suggested that there was a “roughly even chance” of CPI falling below zero given what was happening to food and fuel prices. As such, we are likely to see stable policy for quite a few more months.”
“As for today’s labour data there was some good news with unemployment falling to 5.8% (the lowest since August 2008) from 6%, which is better than the 5.9% figure expected.”
“Wages rose pretty much in line with expectations with total pay rising 1.7% on a 3M/YoY% basis versus 1.4% previously. Excluding bonuses the figure rose to 1.8% from 1.6%. With CPI inflation currently at just 0.5% it shows that real incomes are starting to move in a positive direction.”
“We expect the labour market to continue strengthening through 2015, but not at the same rate as seen over the past couple of years.“
“So, while CPI inflation remains low for now, we see medium term price pressures starting to build – just as the BoE hinted into today’s minutes. Consequently, a rate hike later this year still looks probable to us..”