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Edition February 14, 2018 - Crédit Agricole S.A.
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  • Edition February 14, 2018

    United Kingdom – Bank of England to step up its pace of tightening slightly

    The BoE unanimously decided to leave its monetary policy unchanged at its February meeting, but surprised markets with a hawkish stance. The BoE indicated that "monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period" than anticipated in November.  We now expect the next rate hike in May, while we maintain our forecast for one additional rate increase in November this year and one in August next year.

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  • Content:

    - BoE suggests earlier and larger increases in its key policy rate
    - BoE even more confident in its growth and inflation outlook

  • Extract – BoE suggests earlier and larger increases in its key policy rate

    In line with market expectations, the monetary policy committee (MPC) of the BoE left its monetary policy settings unchanged at its meeting on 8 February 2018 with the Bank rate at 0.5%, the size of the stock of government bond purchases at GBP435bn and the stock of corporate bond purchases at GBP10bn.

    Nevertheless, the BoE surprised the markets with its hawkish communication and greater confidence in the growth outlook despite Brexit uncertainties and stronger political tensions on the domestic front recently. The BoE's updated inflation projections continue to show CPI inflation exceeding the 2% target slightly at the end of the three-year forecast period (by 11bp). The BoE indicated that its tolerance of above-target inflation had diminished and that monetary policy needs to be set so that inflation returns to target "at a more conventional horizon". We update our forecasts for the key policy rate and add one rate increase in May this year while maintaining the same path of tightening thereafter.

  • UK: CPI inflation and MPC's projections

    The BoE continues to expect an overshoot in CPI inflation relative to target at the three-year point (by 11bp) and maintains its view that, as the contribution from external factors – notably the effects of the past depreciation of sterling on import costs – slowly dissipates, domestic inflationary pressures are likely to firm as the economy moves to excess demand from excess supply. 

    UK: CPI inflation and MPC's projections
  • Associative topics : Economics | Europe


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