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Analysts at Nomura note that the BoE’s Inflation Report provided some mixed signals as the first, the unchanged-policy forecast for inflation was revised down more than we expected, but the market rate forecast was revised up.

Key Quotes

“Second, the Bank’s long-awaited view on neutral nominal rates might sound aggressive at between 2-3%, but that is an equilibrium rate for a long time into the future – a decade from now.”

“Third, revisions to economic growth were minimal when averaged across the entire forecast time period. And finally, much of the Bank’s commentary (save for bringing forward by a few months its view on when spare capacity is fully used up) was similar to what was conveyed at the last meeting.”

“On balance, we (and the market it seems) believe today’s Report changes little. However, we remain more hawkish than the market and see the next 25bp move by the Bank being in February next year.”

“Much will likely depend on how the Brexit negotiations have fared between now and then – with the next six months crucially important in that respect.”

“Moreover, the Bank has clearly indicated that it remains in data-dependent mode. While a continued recovery in the economic news should support the need for further hikes, our view of February could yet be derailed if – as was the case in August 2017 and May 2018 – the data roll over.”