The new BoE message should lift inflation expectations – BAML

By FXstreet.com | August 15, 2014 AAA

FXStreet (Guatemala) - Analysts at Bank of America Merrill Lynch explained that the sea-change in the perception of the Bank of England's stance was dramatic.



Key Quotes:



“It is hard to know how much was due to new information, an economic model overhaul or a fundamental change in philosophy”.



MPC members, and the market, had played with the notion of a pre-emptive strike against future inflation risk (perhaps steered by the Governor himself) but this Report could well mark a policy realignment to a position closer to the Fed's”.



“If inflation is now something to react to rather than attempt to pre-empt, this should be bullish UK breakevens at cheap levels”.



“5y breakevens of 2.75% are consistent with CPI inflation well-below 2%, allowing for the RPI-CPI wedge, which looks far too low to us”.



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