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Wade
Saving Enthusiast
Joined: 17 Feb 2005
Posts: 185
Cash Points ££ 2569.94
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 Posted: Sat May 13, 2006 12:17 am Post subject: BOE nervous about inflation ! |
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The governor of the Bank of England said that "central banks are never relaxed". The Bank's quarterly Inflation Report provides fair evidence that policy makers are now nervous about inflation.
First, the language has changed. In an aside on Wednesday, Mervyn King said the economy was "back again, growing strongly". Similarly, a question about the wisdom of the Bank's August rate cut, produced mild discomfort from the otherwise inscrutable governor.
Second, the Bank's new inflation projections show a short-term spike over the next six months from the current 1.8 per cent to about 2.4 per cent. This largely reflects energy prices, and, given the bank's 2 per cent target is set on a two-year time horizon, does not necessarily merit action. Nonetheless, it is clearly different from February's flat inflation estimates.
The Bank provides two inflation forecasts. One assumes existing interest rates of 4.5 per cent remain flat, in which case it expects inflation to remain clearly above the 2 per cent target to the end of its forecast period in early 2008. The other projection scenario assumes interest rates rise in line with market expectations (which, at the point of publication suggested a 25 basis point rise during 2007). In this scenario, the Bank says inflation would decline to the target in two years' time.
Finally, Mr King also highlighted a strong external environment. Net trade is expected to contribute rather than detract from economic growth this year, for the first time since 1995. And there is now evidence that the deflationary impact of import prices, particularly on manufactured goods from China, is waning. The market, which now prices in at least a 50 basis point rate rise next year, has moved ahead of the levels implied by the bank's projections. Yet there is still a palpable sense that the Bank has moved to a more hawkish stance. |
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Nadeem
Veteran Investor
Joined: 11 Jul 2004
Posts: 639
Cash Points ££ 13955.74
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| Posted: Sat May 13, 2006 12:56 am Post subject: |
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So the money markets have already priced in an 0.5% rise in interest rates by the end of this year ?
Hmmmm |
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Deborah
Veteran Investor
Joined: 12 Jul 2004
Posts: 418
Cash Points ££ 1730.36
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| Posted: Tue May 16, 2006 1:22 am Post subject: |
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| Nadeem wrote: | So the money markets have already priced in an 0.5% rise in interest rates by the end of this year ?
Hmmmm |
Yes, the 12 month interbank rate is nearly 0.5% higher than Base rates whcih does suggest higher interest rates.
Inflation is running high in the US due to the falling dollar that is likely to impact on our inflation also ! |
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Toolose
Stranger
Joined: 28 Feb 2005
Posts: 7
Cash Points ££ 157.78
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| Posted: Sat May 20, 2006 8:30 pm Post subject: |
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I can't see why they are nervous about inflation ? What they are saying that it is still going to be at 2% in 2 years time ?
They don't even say rates will rise anytime soon  |
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