BoE: tolerating the trade-off
- Stronger inflationary pressures were balanced by higher rates in the BoE forecast, but the market was still deemed to not price in enough tightening.
- The MPC’s trade-off has become more uncomfortable, and it appears set to hike even if GDP and wage growth is relatively mediocre. Negligible spare capacity while interest rates are below neutral justifies a hiking cycle soon.
- I still expect the BoE to hike in May-18, with the MPC’s lack of urgency balancing risks around that. Guiding rates steeper would be better than hiking earlier.
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