BoE: unwinding the internal inconsistency
- Data have been mixed since August, but the market’s repricing of Brexit risk has delivered a substantial disinflationary shock. Medium-term inflation forecasts are likely to be about 2%, although hawkish pressure remains amid excess demand.- Excesses had been exaggerated in August by the inconsistency of assuming a smooth Brexit and the monetary stimulus from a potential disorderly one. An unwind of that internal inconsistency should not change the contingent guidance.
- I expect the MPC to be unanimously in favour of no policy changes. The sort of dovish extension some MPC members flagged is probably not the one now occurring.
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