–Mean Projection Shows CPI At 1.85% 2yrs Ahead; 1.96% 3yrs Ahead
–Modal Projections Shows CPI At 1.45% 2yrs Ahead: 1.56% 3yrs Ahead
LONDON (MNI) – The numerical forecasts underpinning the Bank of
England’s November Inflation Report show on the most likely, modal, path
inflation is expected to clearly undershoot its 2.0% target but on the
mean projection it comes in only a sliver below.
The BOE’s Monetary Policy Committee chose to leave policy on hold
at its November meeting, when it knew the Inflation Report projections.
The most talked about projection, the modal forecast, clearly showed
inflation coming in below target two and three years’ ahead but the
detailed numbers, published Wednesday, show on a mean projection
inflation comes in close to target.
The modal forecast, based on market interest rates, puts CPI at
1.45% in two years’ time on market interest rates and at 1.59% on flat
interest rates. The mean forecast, however, puts it at 1.85% two years
out on market rates and 1.99% on flat rates.
The forecast has a strong upside skew, with the higher mean
forecast reflecting the upside tilt of the balance of inflation risks.
Three years ahead the modal forecast puts CPI at 1.56% while the
mean forecast puts it at 1.96%, both on market rates.
While economists argue over the weight the MPC should attach to
each projection, the numerical parameters of the projections published
Wednesday show on the face of it the mean projections are compatible
with unchanged policy.
The GDP forecasts show on a modal projection growth rates dip in
2011 before picking up again in 2012. The slowest yearly rate of growth
is 2.45% in Q2 2011, and the fastest 3.33% in Q4 2012.
–London newsroom 0044 20 7862 7491; email: drobinson@marketnews.com
[TOPICS: M$B$$$,M$$BE$]
