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6 Aug 2015
BOE downgrades inflation forecasts for 2015
FXStreet (Mumbai) - The possibility of a rate hike happening this year is almost negligible after the Bank of England downgraded its short-term inflation forecasts and expressed cautious outlook for the labour market.
The dovish signals came through as the bank released its policy statement along with the minutes for the first time. This will be followed by the quarterly inflation report and Carney’s press conference later today.
Lower energy prices and Sterling blamed for lower inflation
The Bank halved its forecasts for inflation in 2015 from 0.6% to 0.3% on the back of falling oil prices and the prolonged strength in Sterling. CPI, which fell to 0% in June, is expected to remain around the same level for the next few months before it begins to rise in the middle of 2016.
Optimism regarding economy
The Bank has become more bullish about the outlook for near-term economic growth, as it expects the economy to expand by 2.8% in 2015 as opposed to 2.5%. The BOE stated that “When bank rate does begin to rise, it is expected to do so more gradually and to a lower level than before.”
Overall the minutes carry a slightly less hawkish tone which is in contradiction to the widespread anticipation of an outright hawkish stance. The sharp downward revision of the inflation forecasts has pushed the rate hike expectations further out in 2016.
The dovish signals came through as the bank released its policy statement along with the minutes for the first time. This will be followed by the quarterly inflation report and Carney’s press conference later today.
Lower energy prices and Sterling blamed for lower inflation
The Bank halved its forecasts for inflation in 2015 from 0.6% to 0.3% on the back of falling oil prices and the prolonged strength in Sterling. CPI, which fell to 0% in June, is expected to remain around the same level for the next few months before it begins to rise in the middle of 2016.
Optimism regarding economy
The Bank has become more bullish about the outlook for near-term economic growth, as it expects the economy to expand by 2.8% in 2015 as opposed to 2.5%. The BOE stated that “When bank rate does begin to rise, it is expected to do so more gradually and to a lower level than before.”
Overall the minutes carry a slightly less hawkish tone which is in contradiction to the widespread anticipation of an outright hawkish stance. The sharp downward revision of the inflation forecasts has pushed the rate hike expectations further out in 2016.