A very small miss on one month’s inflation forecast doesn’t change my assessment

Bank of England (BoE) Deputy Governor Dave Ramsden spoke late in the London market session on Wednesday, highlighting the BoE dove’s stance on rate cuts versus the UK’s current inflation outlook. The BoE policymaker shrugged off October’s upswing in UK inflation as an outlier, convinced that UK inflation will continue to fall fast enough to allow the BoE to continue trimming interest rates. 

Key highlights

The economy will continue to normalise, with the recent trend towards low and relatively stable inflation continuing.

This would imply a scenario in which inflation stays closer to the 2% target throughout the first part of the forecast and falls below 2% more materially later on.

There were uncertainties to diminish and evidence to point more clearly to further disinflationary pressures; then I would consider a less gradual approach to reducing bank rate.

My starting point is to consider it more likely that pay awards will be in the bottom half of the expected 2-4% range than in the top half.

It is not clear the extent to which NICs increase in the Autumn budget will be transmitted into an increase in prices, reduction in wages, and increase in unemployment.

The October CPI data only marginally above BoE’s forecast.

A very small miss on one month’s inflation forecast doesn’t change my assessment of the outlook.