6 May 2016
Bank of England to maintain very cautious position - Rabobank
Ahead of a busy week in the United Kingdom with the decision of the Bank of England and the Quarterly Inflation report, analysts from Rabobank consider that the Bank of England will maintain a “very cautious” position on policy.
Key Quotes:
“The publication of the Bank of England’s May Quarterly Inflation Report comes just over a month before the UK goes to the polls to determine whether the country will remain within or leave the EU. The timing of the June 23 referendum and the uncertainty over its outcome clearly creates some difficulties for Bank staff in deciding on their economic projections for the next year or so.”
“It is likely that political uncertainty has already had some impact on business confidence although it is difficult to isolate the impact of Brexit concerns on UK economic activity from the effects of sluggish global growth. Either way, the pace of expansion in the UK economy is likely to be slower this year than the Bank had estimated in its February Report. For this reason, it seems likely that the BoE will maintain a very cautious position on policy even if the June referendum returns a ‘Remain’ result.”
“Even though a softer pound could support the recovery in CPI inflation back towards the Bank’s 2% target, we expect that slower growth raises the risk that the BoE will be inclined to delay its first rate rise of the cycle and we have pushed our forecast of the first move back to May 2017 from February 2017.”
Key Quotes:
“The publication of the Bank of England’s May Quarterly Inflation Report comes just over a month before the UK goes to the polls to determine whether the country will remain within or leave the EU. The timing of the June 23 referendum and the uncertainty over its outcome clearly creates some difficulties for Bank staff in deciding on their economic projections for the next year or so.”
“It is likely that political uncertainty has already had some impact on business confidence although it is difficult to isolate the impact of Brexit concerns on UK economic activity from the effects of sluggish global growth. Either way, the pace of expansion in the UK economy is likely to be slower this year than the Bank had estimated in its February Report. For this reason, it seems likely that the BoE will maintain a very cautious position on policy even if the June referendum returns a ‘Remain’ result.”
“Even though a softer pound could support the recovery in CPI inflation back towards the Bank’s 2% target, we expect that slower growth raises the risk that the BoE will be inclined to delay its first rate rise of the cycle and we have pushed our forecast of the first move back to May 2017 from February 2017.”