“Recent falls in oil and other commodity prices mean that inflation is likely to remain lower than previously expected until late 2017”, the bank said in its quarterly report.
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As of 12:45 sterling was down by 0.61% versus the Greenback to 1.5292.
“The outlook for global growth has weakened since the August Inflation Report”, the bank said, downgrading its medium-term growth prospects for the United Kingdom economy. “While growth in advanced economies has continued and broadened, the committee nonetheless expects the overall pace of U.K.-weighted global growth to be more modest than had been expected in August”.
The pound fell a cent against the euro and dollar after the inflation report, at just over 1.40 and 1.53 respectively.
While there is not expected to be any move today to change rates from the 0.5% level they have been held at for more than six years, speculation is rife about when an upward move will begin.
Interest rates may stay at their rock bottom levels all the way into 2017, the Bank of England has signalled.
‘This clear dovish shift in the Bank of England’s thinking seems a little odd in an environment where the growth numbers are looking pretty good and where service sector inflation is pushing higher, ‘ said Knightley. “Isn’t it better that the Bank of England give the public and the markets a sense of what our best collective judgment is of what’s going to happen in the economy than to catch people by surprise?”, Shafik said.
The happy outcome is that the Bank’s growth and inflation forecasts haven’t actually shifted very much since August, despite the intensification of the global economic headwinds. The Bank of England (BoE) was gloomy on both growth and inflation forecasts – in particular, the more negative inflation forecasts have put the brakes on the push towards a United Kingdom rate rise.
In the minutes of this month’s meeting, the MPC said only Ian McCafferty voted for an increase in the benchmark rate, arguing there are upside inflation risks. “Such guidance, however, was an expectation and not a promise: the path that Bank Rate would actually follow over the next few years would depend on economic circumstances”.
The Bank’s latest forecasts, which show inflation finally returning to the 2% target by 2018, suggest it is comfortable with the latest market assumption on the “more gradual” rate of rate rises.
However a signal has been provided that the market’s expectations for future rate rises are too far away.
The Bank said today: “The outlook for inflation reflects the balance between persistent drags from factors such as sterling and world export prices, and prospective further increases in domestic cost growth”.
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The Bank is also set to edge down its United Kingdom growth outlook, following official data last week showing that growth eased back to 0.5 per cent in the third quarter from 0.7 per cent in the previous three months.
