BoE: hawkish hurdles in slow race to neutral
- The BoE’s Inflation Report was unusually hawkish amid excess demand building in its forecast. Above-target inflation forecasts are difficult to tolerate because of this, so more tightening is needed. I still expect hikes in May and November 2018.- Bullish forecasts present a high hurdle to a hawkish surprise being delivered during H1, in my view, with a May hike being enough until falling unemployment justifies additional moves later. The MPC’s periodic hikes will likely remain opportunistic.
- Excess demand implies a need to hike beyond neutral, but significant uncertainty draws focus to evidence of effective stimulus. Nonetheless, global developments can continue shifting the pricing of UK rates without disturbing the MPC.
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