BoE still a receiver of market rates – Nomura

By FXStreet Philip Rush, Research Analyst at Nomura, notes that the BoE unsurprisingly decided to leave policy unchanged at its February meeting, but there was dovish news in this as Ian McCafferty dropped his hawkish dissent, making the decision unanimous.

Key Quotes

“Further oil price declines over the turn of the year depressed the inflation outlook, including at the 2yr horizon. With the MPC looking for a rise in spot price and wage inflation for confirmation that spare capacity is translating into pressures that warrant a rate hike and that rise not expected to be seen, the MPC is settled in its holding pattern. Consistent with this, our more hawkish forecast for inflation later in 2016 could yet motivate an earlier rate hike once the Brexit referendum is passed, assuming the UK votes to remain in the EU.

Declining market rates delivered some stimulus to the forecast but the constant rate one is anyway low now. Conditional on no change in policy, the MPC sees only a 51% probability of overshooting its target in 2yrs, which implies a firmly neutral outlook for rates, at least in the near term. There is still a small overshoot of the inflation target at the 3yr forecast horizon, …read more

Source:: FX Street