27 Feb 2015
BoE unconcerned about UK’s building deflationary cycle – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, notes that with UK CPI set to fall further in coming months and the BoE acknowledging below zero inflation rate as being “likely” in spring, the comments from the BoE members and Carney’s implies that the central bank is not concerned about the building deflationary cycle.
Key Quotes
“UK CPI inflation is set to continue falling in the coming months. The minutes of the January MPC meeting suggested that the Bank then saw the chances of a dip below zero by UK CPI inflation during H1 2015 as roughly evenly balanced.”
“In February the Bank has described the chances of a below zero inflation rate this spring as ‘likely’.”
“It is in the context of a lower for longer inflation rate that MPC members McCafferty and Weale gave up their call for an immediate tightening in monetary policy in January. However, both these members maintain the belief that the fall in inflation will be temporary and that it was unlikely to materially affect the behaviour of households and businesses in such a way that it becomes perpetuating.”
“This theme was extended by Carney this month in his comments that “the combination of rising wages and falling energy and food prices will help household finances and boost the growth of real take home pay this year to its fastest rate in a decade. This will support solid growth in consumer spending”.”
“In short the Bank does not appear to be concerned that a deflationary cycle is building in the UK.”
Key Quotes
“UK CPI inflation is set to continue falling in the coming months. The minutes of the January MPC meeting suggested that the Bank then saw the chances of a dip below zero by UK CPI inflation during H1 2015 as roughly evenly balanced.”
“In February the Bank has described the chances of a below zero inflation rate this spring as ‘likely’.”
“It is in the context of a lower for longer inflation rate that MPC members McCafferty and Weale gave up their call for an immediate tightening in monetary policy in January. However, both these members maintain the belief that the fall in inflation will be temporary and that it was unlikely to materially affect the behaviour of households and businesses in such a way that it becomes perpetuating.”
“This theme was extended by Carney this month in his comments that “the combination of rising wages and falling energy and food prices will help household finances and boost the growth of real take home pay this year to its fastest rate in a decade. This will support solid growth in consumer spending”.”
“In short the Bank does not appear to be concerned that a deflationary cycle is building in the UK.”