The trade-off between the MPC’s path to return to its inflation target and monetary support to the economy is likely to be constantly challenged, according to analysts at TDS.
“The constraints on the supply side of the economy do limit the effectiveness of the BoE’s monetary tools. As highlighted by Carney in his recent speech, Brexit represents a real shock to the economy about which monetary policy can do little.”
“We think that the BoE’s policy normalization will be opportunistic, taking advantage of any favourable incoming data or positive news around Brexit negotiations. Our base case continues to be that the BoE hike rates in May 2018. This particularly holds as the BoE plans to remain accommodative with respect to its reinvestment policy for now.”
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