BoE set to remain on hold for the next 12 months - Danske

According to analysts from Danske Bank, the Bank of England (BoE) is likely to remain on hold for the next 12 months and they seem to be more worried about slower growth than too-high inflation if this is only temporary.

Key Quotes: 

“As widely expected, the Bank of England (BoE) made no policy changes at its February meeting. It kept the Bank Rate at 0.25%, while it left the targets for the stock of government bond purchases (APF) and the stock of corporate bond purchases (CBPS) at GBP435bn and GBP10bn, respectively. It made no changes to the new Term Funding Scheme (TFS).”

“The BoE maintained its neutral stance, as it can move ‘in either direction’. This was perhaps more dovish than some market participants had expected, which may explain the depreciation of the GBP and lower UK yields.

“We still expect the BoE to remain on hold for the next 12 months. While we think it is unlikely the BoE will tighten monetary policy in a time of elevated political uncertainty, we think we need to see slower growth and/or higher unemployment before easing becomes likely again. Also, BoE Governor Mark Carney repeated that one of the reasons the UK has been resilient to Brexit uncertainties so far is due to the significant monetary easing from the BoE.”

“Notice that the BoE reaction function has changed since the financial crisis, so the BoE puts more weight on growth/unemployment relative to inflation. In our view, the BoE seems to be more worried about slower growth than too-high inflation if this is only temporary.”