BoE: MPC to look through inflation rise, but tolerance to be tested – Lloyds Bank
|Analysts at Lloyds Bank see the MPC as remaining highly attuned to emerging signs of consumer weakness as sterling’s post-referendum drop depletes purchasing power.
Key Quotes
“For now, evidence that underlying wage growth remains muted – dipping to just 2.1% in the 3 months to March, thus painting a relatively benign picture for domestically-generated inflation – is salving the appetite for tighter policy among the bulk of the MPC. Even if inflation rises above 3% around the end of 2017 we expect that a majority for a hike will fail to coalesce.”
“Meanwhile, the possibility of a disorderly exit from the EU – should a new exit or transitional arrangements not be agreed within the two-year timeframe stipulated by Article 50 – would clearly impact on the policy outlook. In our view, the bulk of the MPC will be wary of reversing the stimulus of August 2016 prematurely only to risk being pushed into another round of loosening later down the line. Nevertheless, over the coming months a prolonged period of above-target inflation - particularly if accompanied by second-round effects – is likely to test the willingness of most on the MPC to tolerate the current monetary policy stance.”
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