UK – BOE expected to keep the bank rate unchanged

The Bank of England (BoE) is expected to keep the bank rate unchanged at 0.5% at its meeting on 4 June. Headline CPI inflation dipped into negative territory, -0.1% y/y, in March. 

Core CPI inflation also fell to 0.8% y/y. The large divergence between core and headline CPI reflects the extent of pressures from lower energy and food prices. 

Despite that, the Monetary Policy Committee seems comfortable with the current market-implied rate hike path. The key risks to the inflation outlook are a protracted weakness of productivity that will spur wage growth. So far, wages have picked up since last year; however, wage growth remains below the pre-crisis long-term average growth rate. 

"Our view is that inflationary pressures will appear faster than currently assumed by the BoE, therefore we see the BoE hiking in Q4-2015", says Standard Chartered.