GB: BoE Inflation Report

Thu Nov 05 06:00:00 CST 2015

The BoE's new Quarterly Inflation Report (QIR) shows a marginally softer growth profile and slightly higher medium-term inflation than in August. However, the adjustments are unlikely to have any immediate implications for monetary policy.

Real GDP is now seen expanding 2.7 percent in 2015 and 2.5 percent next year, both rates just a tick short of their respective August projections. Near-term official inflation expectations have been trimmed but at 2.06 percent in two years' time and 2.22 percent at the end of 2018, inflation is forecast 0.03 percentage points and 0.08 percentage points above the respective August projections. However, risks to the new forecasts were seen to be on the downside over the first two years in respect of international developments.

Crucially, spare capacity is still put at 0.5 percent and the long-term equilibrium unemployment rate stays at 5.0 percent.

In summary, the changes here are too small to excite financial markets and by emphasising a high degree of uncertainty, the BoE has reduced the QIR's potential impact anyway. A hike in Bank Rate still looks on the cards in 2016 but any Fed tightening next month is unlikely to have much impact on the BoE's timetable about which, at this stage, even the central bank is probably far from certain.

The Bank's quarterly Inflation Report was first published in 1993. The Report sets out the detailed economic analysis and inflation projections on which the Bank's Monetary Policy Committee bases its interest rate and other major policy decisions, and presents an assessment of the prospects for UK inflation.

For analysts who want to know the Monetary Policy Committee's latest thinking on the economy, the Inflation Report is must reading. The Report starts with an overview of economic developments; this is followed by five sections which include analysis of money and asset prices; analysis of demand; analysis of output and supply; analysis of costs and prices and assessment of the medium-term inflation prospects and risks. The Bank of England's governor holds a press conference to discuss the report.