- Should not assume that latest MPR forecast is a direct endorsement of market interest rate curve.
- I see risk of second round effects (for inflation).
- I remain concerned we have seen a structural change in price and wage setting in UK.
- Response of monetary policy to ensure we get CPI back to target may need to be more persistent.
- MPR inflation forecast has become less relevant to MPC policy debate.
Pill, alongside Mann, voted for keeping the Bank Rate unchanged at the last policy decision. He is sounding hawkish because we haven’t really seen a concrete progress in UK inflation and wage growth data.
I think the upside inflation scenario is already playing out as growth fears in the markets ease and the BoE cut interest rates even though they haven’t made much progress on underyling inflation and especially on the wage growth side.
This article was written by Giuseppe Dellamotta at www.forexlive.com.