LONDON (MNI) – The Bank of England’s February Inflation Report
and the subsequent press conference by Bank of England Governor Mervyn
King may have been viewed as dovish in some markets, but following its
publication economists at Barclays and Royal Bank of Scotland have
brought forward their call for the first rate hike to May.
The Inflation Report stated there was a “roughly equal” chance of
inflation being above or below target two year and three years ahead on
its market rate forecast. This forecast was conditioned on the first
hike coming in the second quarter of this year and then a steady move
higher in Bank Rate.
Barclays’ economists had been forecasting a November hike, but
brought it forward to May.
“We now expect the MPC to raise Bank Rate by the middle of the
year, taking the first step on a gradual tightening path. Specifically,
we forecast 25bp increases in May, August and November, taking Bank Rate
to 1.25% by the end of the year,” Barclays economist Simon Hayes said in
a note.
Economists at Royal Bank of Scotland, who had also predicted a
November hike, have now switched to May.
They said in a note there were “modest risks of an earlier move in
March”.
RBS economists noted that while the modal (most likely) forecast in
the February Inflation Report was for CPI to come in below target, at
around 1.7%, two years ahead the skew was to the upside and the mean
forecast would be around the 2.0% target on market rates.
The Inflation Report, therefore, does on this view support market
rate hike pricing.
–London Bureau; Tel: +44207 862 7491 email: drobinson@marketnews.com
[TOPICS: M$$BE$,M$B$$$]
