17 Jun 2015
BoE Minutes: Drag on growth due to fiscal policy might postpone the first hike – Danske
FXStreet (Barcelona) - Reviewing the BoE MPC Minutes, Analyst at Danske Bank, Mikael Olai Milhøj, believes that the drag on growth expected due to the fiscal policy poses downside risk to their November rate hike call.
Key Quotes
“Firstly, the MPC thinks that private consumption will rebound in the coming quarters after the slowdown in Q1 and thus that the ‘dip in [GDP] growth would prove to be temporary and that growth would be stronger in Q2’.”
“Secondly, there were some comments on the impact of fiscal consolidation. The Chancellor of the Exchequer, George Osborne, is presenting the budget on 8 July and the MPC ‘would have the chance to assess the updated fiscal projections in the preparation of its August inflation report’. It also stated that ‘it was likely that fiscal consolidation would continue to weigh on growth for some time’.”
“The drag on growth from fiscal policy the coming years has become an important factor for the timing of the first hike and is a downside risk to our November call. Also, the fiscal consolidation could mean that the Bank Rate may be increased even more gradually than currently expected.”
“Thirdly, as expected, there was no major discussion about the fact that UK fell into deflation as the MPC members expect this to be only temporary (as confirmed by yesterday’s release of May inflation).”
“Fourthly, MPC sees signs that wage growth is picking up. Accounting for the composition of employment growth, the underlying pay growth ‘could be running at an annual rate somewhat stronger than the AWE measures’. This was more dovish than in previous minutes.”
Key Quotes
“Firstly, the MPC thinks that private consumption will rebound in the coming quarters after the slowdown in Q1 and thus that the ‘dip in [GDP] growth would prove to be temporary and that growth would be stronger in Q2’.”
“Secondly, there were some comments on the impact of fiscal consolidation. The Chancellor of the Exchequer, George Osborne, is presenting the budget on 8 July and the MPC ‘would have the chance to assess the updated fiscal projections in the preparation of its August inflation report’. It also stated that ‘it was likely that fiscal consolidation would continue to weigh on growth for some time’.”
“The drag on growth from fiscal policy the coming years has become an important factor for the timing of the first hike and is a downside risk to our November call. Also, the fiscal consolidation could mean that the Bank Rate may be increased even more gradually than currently expected.”
“Thirdly, as expected, there was no major discussion about the fact that UK fell into deflation as the MPC members expect this to be only temporary (as confirmed by yesterday’s release of May inflation).”
“Fourthly, MPC sees signs that wage growth is picking up. Accounting for the composition of employment growth, the underlying pay growth ‘could be running at an annual rate somewhat stronger than the AWE measures’. This was more dovish than in previous minutes.”