Preview: BoE temporarily tolerant of excesses
- Political uncertainty continues to constrain the MPC, which looks set to unanimously announce no change in policy at its February Inflation Report.- Looser monetary conditions are likely to offset the disinflationary effect of energy price weakness and raise the Bank’s medium-term inflation forecasts slightly. Ongoing excess inflation and excess demand is an uncomfortably hawkish forecast.
- Rather than risk perceptions of the MPC’s reaction function shifting, I expect the MPC to indicate its tolerance is only temporarily increased. That is a reasonable policy amid a Brexit-related risk and forecast inconsistency that biases up excesses.
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