Supply: the BoE runs out of slack
- The BoE’s annual supply side assessment will feed into its 8-Feb Inflation Report.- Unemployment has fallen further, but not among those out of work for a long time, and the Beveridge curve has been stable. An hours gap may persist, but the unemployment gap has probably gone, participation is high, and surveys are tight.
- I expect the MPC to signal it sees the economy without any slack left. Slack is needed to tolerate the inflation overshoot in the MPC’s trade-off. Delivery of another periodic hawkish surprise would help progressively return rates to neutral.
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