GBPUSD: Trading the Bank of

Bank of England inflation Report

More reaction from City economists, this time from Ben Brettell at Hargreaves Lansdown:

The Bank of England voiced concerns last month that the EU referendum had begun to affect the real economy and has made that warning even more explicit today. They state that a vote to leave the EU could ‘materially alter the outlook for output’. But for now though, expect no action on monetary policy until the dust has settled on the referendum.

Recent economic data releases have certainly painted a worsening picture.

Figures released yesterday showed UK industry slipped back into recession for the third time in eight years, and the sector is acting as a drag on the economy as a whole. Respected think-tank NIESR said yesterday that the UK economy lost momentum in the three months to April, estimating GDP growth of 0.3% compared with 0.4% for the three months to March. NIESR explicitly cited uncertainty over the referendum as a cause of the slowdown.

As such it wasn’t a surprise that the Bank cut its growth forecast for 2016, to 2.0% (compared with the 2.2% expected in February’s Inflation Report).

Another unsurprising result was the unanimous decision to leave rates on hold. In fact what speculation there was centred on whether any of the nine-strong committee would vote to cut rates, rather than raise them. The Bank expects inflation to reach its 2% target in mid-2018, before going on to rise further. These predictions assume bank rate follows market expectations of the first rise some time in 2018, and therefore suggests that if the Bank wants to avoid inflation exceeding the target, it needs to start raising rates somewhat sooner.

Source: blogs.ft.com
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