8 things we learned from the Bank of England

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Today was the second Super Thursday from the Bank of England - this is the release of the interest rate decision, minutes and Inflation report - all in a oner.  There was no movement on rates, but we always learn a good deal more about the Bank's thinking from these events.  Here's our top eight take-ways....

 

  1. The main headline from the Inflation Report was the downward revision to both GDP and inflation forecasts for this year and next. The Bank now expects GDP to grow by 2.7% in 2015 (previously 2.8%) and 2.5% in 2016 (2.6%). Still a bit strong versus that the market view for this year.               

  2. The profile for inflation is also slightly softer through the forecast period.  

  3. But not all revisions are downwards. Following National Accounts revisions which show a weaker path of investment growth than previously thought, the Bank has upped its projections for business investment growth by 0.25% and 0.5% next year and in 2017 respectively. While it notes that survey intentions are holding up, we’d put this more optimistic view on amber watch.

  4. More weight is being given to downside risks stemming from emerging markets compared with the Bank’s August assessment. The direct export effects from  a sharp slowdown in China are thought to be small, but the greater exposure of the UK’s other trading partners could make a weaker outlook in China … and other emerging economies, a bigger deal for the UK.

  5. The ups and downs of construction activity aren’t clear to the Bank either. The difference between official and survey data around the construction sector is an on-going puzzle – and not just for us. We had been expecting a post-election improvement – the Bank expects revisions to the official data.

  6. The updated forecasts and analysis presented in the Inflation Report didn’t convince any MPC members to join Ian McCafferty to vote for a rate rise this month.

  7. New ‘guidance’ was issued on the future of the Bank’s asset purchase programme – this will not start to be unwound until Bank Rate has risen to 2%.

  8. The immediate aftermath of these quarterly events are always subject to a lot of interpretation. Our two cents worth is that the report seems slightly more dovish in tone than August’s and the prospect of a rate rise in the near term seems all but off the table. May 2016 could be the earliest we see the first move.

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Chief Economist

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