March UK rate hike still possible
Simon Ward
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In his most hawkish speech to date, the MPC's Andrew Sentance dissociates himself from the medium-term inflation forecast in the February Inflation Report (which itself seems to call for an early rate rise – see previous post) while arguing that the Committee's failure to tighten policy earlier will mean bigger and sharper interest rate rises, with attendant risks to recovery prospects. The speech suggests that Dr Sentance voted for a half-point Bank rate hike at last week's meeting.
The previously-discussed "MPC-ometer" model, meanwhile, is currently signalling a 70% probability of a quarter-point increase in March but could change significantly depending on the February MPC vote, fourth-quarter GDP revision and consumer / purchasing managers survey results for February. A contributor to the hawkish reading is a further increase in the net percentage of CBI industrial firms planning to raise prices in February (released today), suggesting that CPI goods inflation will rise from 3.8% in January to about 5% – see chart.
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