BOE Carney: Inflation Profile Lower Despite Utilities Bank of England Governor Mark Carney says the profile for inflation in the UK is lower despite the headline grabbing surge in utility prices. Carney also downplayed the spike in inflation expectations in the Citi/YouGov survey out Thursday. He said that net/net the UK inflation outlook was softer than it was back when the BOE published its last forecast in August. In a question and answer session at a Financial Times event Carney noted the Citi/YouGov survey had been carried out just when the headline grabbing utility price hikes were announced and he said market inflation expectations had not shifted. The survey was actually when the high profile, and they were high profile, announcements of energy price increases happened, he said. The Citi/YouGov survey showed year ahead inflation expectations spiked to 3.2% in October from 2.5% in September, well above the BOE Monetary Policy Committees 2% target. The MPC looks at a range of inflation indicators and it was not clear whether the rise in the Citi/YouGov survey would persist, Carney said. Market indicators have not moved. They didnt move today and they havent moved over the course of these energy price increases, he noted. The rise in utility prices will push up on inflation, but Carney stressed there were offsetting factors. The MPC had already factored in a 5% average rise in utility prices in its August Inflation Report, and the recent gas and electricity rises have been in an 8% to 10% range. The prices that are coming out are a bit higher than we had pencilled in in our last forecast but all of that translates to 15 basis points on inflation next year, Carney said. The revised BOE forecasts will come in the November Inflation Report, but Carney suggested the profile is likely to be lowered, rather than raised, compared to the August one. Since we made that (August) forecast there has been a variety of other things that have been in the opposite direction, Carney said. He did not specify what they were, but one obvious downward pressure on inflation comes from the appreciation of sterling on its effective exchange rate. Carney said the full forecast would only come out in November but when you net it out it appears to be slightly tilted to the downside ... although well over target. The BOE Governor also expressed some unease about the breadth and composition of the UKs economic recovery, which is domestic consumption led. The headline growth numbers are pretty strong. The economy has picked up over the last couple of quarters. We expect the second half to be stronger than the first half, Carney said. The third quarter GDP numbers are out Friday, with analysts forecasts for growth on the quarter in a 0.7% to 1.0% range. The rate of growth in the UK is toward the top end of the advanced economies but it is from a very, very low base, Carney said. The composition of growth is more concerning. The balance of that growth is weighted more heavily towards the household sector in the UK. Investment is still relatively modest and the export side is challenged, the Governor said. We can take some encouragement from what we are seeing but it is a long way back, Carney said.
Posted on: Fri, 25 Oct 2013 01:21:45 +0000
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