6 Apr 2015
Headline UK CPI expected to fall, but no signs of building deflationary risks – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, reviews the inflation scenario and BoE member views on the same, and remains of the view that there is little sign of any building deflationary mindset in the UK as labour force, consumption and consumer confidence continues to strengthen.
Key Quotes
“Headline UK CPI inflation is widely expected to continue falling in the coming months. The minutes of the January MPC meeting suggested that the Bank then saw the chances of a dip below zero by UK CPI inflation during H1 2015 as roughly evenly balanced.”
“In February the Bank described the chances of a below zero inflation rate this spring as ‘likely’ and this risk was repeated in March. It is in the context of a lower for longer inflation rate that MPC members McCafferty and Weale gave up their call for an immediate tightening in monetary policy in January.”
“However, both these members have stressed their belief that it was unlikely to materially affect the behaviour of households and businesses in such a way that it becomes perpetuating. This indicates that they saw no signs of a deflationary mindset developing in the UK.”
“Miles recently added his voice to those MPC members who are not expecting deflation to take hold in the UK and last month Carney perpetuated this theme by commented that “the combination of rising wages and falling energy and food prices will help household finances and boost the growth of real take home pay this year to its fastest rate in a decade. This will support solid growth in consumer spending”.”
“In short the Bank does not appear to be concerned that a deflationary cycle is building in the UK.”
“Outlook: While the Bank will be on alert for any signs of a buildup in deflationary risks, we concur with the sentiments of many MPC members that there is yet little sign of a deflationary mindset developing in the UK. The labour force continues to tighten with jobless claims continuing to fall. Also, consumer confidence and consumption activity have strengthened.”
Key Quotes
“Headline UK CPI inflation is widely expected to continue falling in the coming months. The minutes of the January MPC meeting suggested that the Bank then saw the chances of a dip below zero by UK CPI inflation during H1 2015 as roughly evenly balanced.”
“In February the Bank described the chances of a below zero inflation rate this spring as ‘likely’ and this risk was repeated in March. It is in the context of a lower for longer inflation rate that MPC members McCafferty and Weale gave up their call for an immediate tightening in monetary policy in January.”
“However, both these members have stressed their belief that it was unlikely to materially affect the behaviour of households and businesses in such a way that it becomes perpetuating. This indicates that they saw no signs of a deflationary mindset developing in the UK.”
“Miles recently added his voice to those MPC members who are not expecting deflation to take hold in the UK and last month Carney perpetuated this theme by commented that “the combination of rising wages and falling energy and food prices will help household finances and boost the growth of real take home pay this year to its fastest rate in a decade. This will support solid growth in consumer spending”.”
“In short the Bank does not appear to be concerned that a deflationary cycle is building in the UK.”
“Outlook: While the Bank will be on alert for any signs of a buildup in deflationary risks, we concur with the sentiments of many MPC members that there is yet little sign of a deflationary mindset developing in the UK. The labour force continues to tighten with jobless claims continuing to fall. Also, consumer confidence and consumption activity have strengthened.”