–BOE Quarterly Bulletin Study: Inf. Expectations “Fairly Well Anchored”
–BOE Dale: Little Evidence Inf. Expectations Entrenched In Wage Setting
–BOE Dale: Inflation Expectations Still Key Concern For MPC

LONDON (MNI) – Research shows long-term inflation expectations are
reasonably well anchored despite high inflation outturns, but Bank of
England Chief Economist Spencer Dale says inflation expectations are
still a key concern for the Monetary Policy Committee.

Writing in the foreword to the BOE’s Quarterly Bulletin, which
contains the research, Dale says that while movements in short and
medium term inflation expectations have been mixed, even they appear not
to have been “significantly de-anchored.”

Dale himself has voted in favour of a rate hike in recent months in
part, as the MPC minutes state, due to concerns over “the possibility
that inflation expectations would increase.”

The BOE’s own research, however, published in the Quarterly
Bulletin, suggests that at present inflation expectations have not
soared or become completely detached from the MPC’s target.

“The current data suggest that long-term inflation expectations
remain reasonably well anchored to the target. The signals regarding
short- and medium-term inflation expectations are more mixed, but there
are few signs that they have become significantly de-anchored,” Dale
writes.

“Even with short-term inflation expectations remaining elevated,
there is little evidence as yet that they are becoming entrenched in
wage and price-setting behaviour,” he added.

“But because inflation expectations cannot be observed
directly and there are significant uncertainties surrounding the
different indicators used, this risk can be assessed only imperfectly
and it remains a key area of concern for the Committee,” he stated.

International experience suggests when inflation deviates from
target, inflation expectations tend to drift in the same direction. Dale
says, however, that recent movement in UK inflation have been mixed,
moving both up and down “reflecting volatility in inflation and in
measures of inflation expectations.”

The Quarterly Bulletin also contains some other striking results.

It says the public satisfaction with the way the BOE sets monetary
policy has deteriorated since mid-2010 – a period which has seen
elevated inflation outturns.

Another piece of research appears to explode the myth that the
reason UK housing equity withdrawal has turned negative – that is,
turned into a net equity injection – is because households are paying
down debt more rapidly.

HEW turned negative back in 2008, for the first time since the
1990s, and has stayed negative since.

Citing the BOE research Dale says “the move from positive to
negative HEW appears largely to be the result of the weakness in housing
market transactions; the pace of repayments is little changed.”

–London newsroom: 4420 7862 7491; email: drobinson@marketnews.com

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