In UK economy, one might expect that lower growth path to lead to a revision of the output gap estimate but in fact it has remained at ½% of GDP.
The MPC has also updated its view of the supply side of the economy in what Carney described in his opening remarks as a "comprehensive review," the conclusions of
which are shown in a box on "The MPC's assessment of potential supply."
It believes that much of the increase in the labour participation rate has been cyclical and that it has little further to rise - for the third successive report, it has revised
down its forecast of the peak in the participation rate.
The result is that the despite a moderately weaker outlook for demand growth relative to the February Inflation Report, a similarly weaker outlook for supply means
a sufficient firming in inflationary pressures is expected to return to target within two years.
"The output gap is now expected to close in a year whereas three months ago the time to close was 18 months, i.e. 15 months from now. However, there is no real
difference between these two estimates, given the degree of uncertainty surrounding the estimate" says Societe Generale.
In the press conference Q&A, Carney was reminded by a journalist of a comment by the previous Deputy Governor for Monetary Analysis, Charlie Bean. Bean said that,
of course, the Bank would start to tighten policy before the gap had completely closed. Applying that to the present would imply the first rate increase by May 2016 but
Carney was highly noncommittal in his reply.
