-BOE: CPI 1.8% 2yrs time on stg375bn QE, market rates
-BOE: CPI Seen close 1.9% in 3yrs on stg375bn QE, market rates

LONDON (MNI) – The Bank of England’s Monetary Policy Committee
pushed up its near term inflation forecast and predicted it would come
in only a little under target in two years’ time.

The central projection in the November Inflation Report shows CPI
at around 1.8% in two years’ time and at 1.9% three years out. This is a
shade higher than the 1.7% two year, and 1.8% three year, forecasts in
the August Inflation Report and leaves only a little room for further
stimulus.

The probability chart, showing the chances of inflation coming in
above or the 2% target, showed a little over a 45% chance of inflation
being above target, which again suggests the door to further stimulus is
just ajar.

Analysts had expected the slight rise in the two and three year
inflation forecasts.

Larger utility price hikes than the BOE had predicted contributed
to the increase in near term inflation.

“The near term outlook is higher than in August, reflecting
higher-than-expected outturns for inflation together with unexpectedly
large increases in household energy prices announced for the next few
months,” the report said.

It highlighted the uncertainty surrounding the inflation outlook,
but said inflation is likely to fall in the second half of 2013.

At its November meeting the MPC voted to keep policy unchanged, and
the Inflation Report sketched out the thinking behind this decision.

It said that at the November meeting “the Committee noted that a
slow recovery in GDP growth was likely as some of the headwinds holding
back demand in recent years abated.”

The MPC, which had the key November Inflation Report forecasts,
also noted that the near term inflation outlook had been raised “but
further out inflation was likely to fall back to around the target.”

“Against that backdrop, the Committee decided that it was
appropriate to maintain Bank Rate at 0.5% and the size of the asset
purchase programme at stg375 billion.”

The Inflation Report shows that on unchanged policy inflation would
be a little lower than on its headline forecast, which is based on
market rates.

On flat rates CPI two years’ out looks closer to 1.7%. This is
because markets are still pricing in a rate cut, with Bank Rate down at
0.3% in Q2 2013 and only rising back up to its current 0.5% two years
out.

The growth projections do show a slow, but fairly steady, recovery
with GDP growth rising to around 1.9% on the year in two years’ time and
then accelerating only marginally from this pace in the third year of
the forecast.

The report says that while GDP expanded by 1% on the quarter in Q3
it is “likely to fall sharply in Q4″ and that stripping out the
volatility it has been “broadly unchanged over the past two years.”

London Bureau; Tel: +44207 862 7491 e-mail: drobinson@marketnews.com

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