BoE: Higher rates still a realistic prospect - Nomura

Analysts at Nomura suggest that following the BoE’s decision to keep interest rates on hold and leave its commentary and forecasts broadly similar to that of the May/June meetings, they have shifted their call for higher rates to November at the earliest (data dependent).

Key Quotes

“All of our reasons to justify higher rates remain intact, but it seems that the MPC’s “lambda” (in Mr Carney’s words – i.e. the weight the Committee places on weaker output versus above-target inflation when setting policy in “exceptional” timers) was higher than we thought. In particular, the Bank continues to state that it has limited tolerance for above-target inflation and argues the market is not pricing in sufficient tightening should the forecasts in the August Inflation Report materialise. The key to when the first rate rise might be relates to the resilience of consumer spending, how much weaker consumption might be offset by spending elsewhere, how quickly domestically generated inflation pressures filter through, and – crucially – how tolerant the MPC will be of above-target inflation.”