Bank of England raises inflation estimates, pushes back Brexit impact

Inflation
The Bank of England has raised its 2017 inflation estimate to 2.7%, from the current rate of 1%. The Bank does not expect inflation to return to its 2% target until 2020.

The rise in inflation expectations was explained by the decline in the pound since the EU referendum, which is driving up prices of imported goods.

Fig 1. Projections for UK CPI based on market interest rate expectations

Source: http://www.bankofengland.co.uk/publications/Pages/inflationreport/2016/nov.aspx

Growth
The economic growth rate forecast was also raised from 0.8% to 1.4% for 2017, whilst expectations were cut for 2018 from 1.8% to 1.5%, signalling that the Brexit impact will be felt later than originally expected.

Further interest rates considered in August have been clearly ruled out.

Fig 2. Projections for UK GDP based on market interest rate expectations

Source: http://www.bankofengland.co.uk/publications/Pages/inflationreport/2016/nov.aspx

NOTICES: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.
This article has been written for a US and UK audience. Tickers are shown for corresponding and/or similar ETFs prefixed by the relevant exchange code, e.g. “NYSEARCA:” (NYSE Arca Exchange) for US readers; “LON:” (London Stock Exchange) for UK readers. For research purposes/market commentary only, does not constitute an investment recommendation or advice, and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product. This blog reflects the views of the author and does not necessarily reflect the views of Elston Consulting, its clients or affiliates. For information and disclaimers, please see www.elstonconsulting.co.uk
Photo credit: N/A; Chart credit:Bank of England; Table credit: N/A

Comments

Market timing is a mug’s game

John Authers’ Long View article in the FT this weekend addresses market timing. While he claims that just passive investors are such bad timers, we would go further: most are. Attempts to time the market (choosing the right moment to buy or sell into risk assets) are a mug’s game. Great for brokerages that delight in investors’ fees levied to senselessly overtrade. Bad for investor’s portfolio outcomes. Despite the annual survey by Dalbar that investors’ attempts to time the market is really bad for their portfolio, people – including some portfolio managers – still try and have a go. The problem is that in timing the market, we become slaves to our behavioural biases around entry points, and the noise around market sentiment. An investor fearing Brexit might have – out of emotion – sold everything to cash stocked up on gold sovereigns and run for the hills whilst tracing Irish ancestry. The smart thing was to acknowledge sterling weakn...

The cost of Marmite, and Brexit’s quiet fear gauge

UK commentators are looking for data points that vindicate the Referendum result one way or the other Sterling’s slide and the FTSE 100 Index level together or in isolation are not the best indicators for a Brexit fear gauge The potential inflationary impact of a ‘hard Brexit’ has caused UK breakeven rates to spike, creating a real challenge for the Bank of England Give me a sign Just as high priests in Roman times, after slaughtering their offering, examined its entrails to gauge the Gods’ favour, so too have UK commentators been searching for any statistical insight or market data point to declare whether the shock Brexit result is likely to lead to economic success or failure. The data point phoney war The data that has come out since the EU Referendum on 23 rd June 2016 is meaningless as we still don’t know what Brexit looks like. It’s been a phoney war for headlines, as stunned commentators search for a gauge to measure policymakers by. ...

UK votes for Brexit

UK public votes 52% to 48% to leave the EU: the exit process could take 2 to 4 years. Regional differences will create further constitutional strain on the UK Pound plunging, and expect UK Equities to follow suit. Expect flight to safety away from risk assets as the market digests the potential for structural change. Brexit it is The UK public has voted to leave the European Union after 43 years in yesterday’s referendum. Leave has 51.7% of votes so far with 71.8% turnout (higher than pervious general election) suggests a vote for Brexit by a narrow margin. The leaving process could take a minimum of two years, and even Leave campaigners don’t expect the process to complete until 2020. Opinion polls were too close to call Polling pointed to a closer result and recent momentum for the Remain campaign which had given markets an element of (false) security: the final poll put 45% Leave, 44% Remain, 11% Don’t Know. While the binary nature of the debate suggested...

elstonviews

Search This Blog