Wednesday, February 16, 2005
Mixed messages from the Bank
Posted by David Smith at 08:30 PM
Category: Thoughts and responses

The Bank of England's quarterly inflation report, published today, gave us a new forecast that pointed to the need for higher interest rates but an accompanying commentary that suggested the monetary policy committee (MPC) is very comfortable with rates at 4.75%.

Confusing? Yes. But the Bank is not particularly confident in its central forecast, for two reasons. The first is the uncertainty of the link between a softer housing market and consumer spending. The second is the degree of inflationary pressure that will result as the economy nears capacity, one problem being that the Bank is uncertain about how much spare capacity there is.

The upshot is that rates are on hold for some time. My prediction is that the next move will be down, but not until much later in the year at the earliest.