14 February 2001, 18:10 UK ANALYSTS: BOE INFL REPORT UNLIKELY TO SIGNAL RATE CUTS YET
By Julia Kollewe
LONDON (MktNews) - The Bank of England's February Inflation Report
will most probably show a softer profile for RPIX than that published in
November but is still unlikely to signal that the central bank will cut
interest rates within the next couple of months, analysts said Tuesday.
Last week the BOE cut the official repo rate by a quarter-point to
5.75% without any accompanying statement and analysts are now looking to
the February report, which will be published at 10:30 GMT, to see if
further rate cuts are around the corner.
Economists predicted that RPIX would still be forecast reaching
2.5% in two years time in the central projection but the new report will
feature a softer profile over the next two years as a result of
inflation so far turning out weaker-than-expected and the slowdown in
the global economy.
"The key downward influence on the Bank's inflation forecast since
the last report - and hence the main reason for Thursday's rate cut -
was simply the fact that recorded inflation has continued to come in
much lower than the Bank has expected," said Jonathan Loynes, UK
economist at CapitalEconomics.
In January, RPIX inflation dropped to 1.8%, the lowest annual rate
since comparable records began in 1976.
But economists said the report is unlikely to give a green light to
rate cuts in the next couple of months as some members of the Monetary
Policy Committee are still likely to be worried about the possibility of
further weakening in sterling and that domestic demand has still shown
no signs of slowing significantly.
Danny Gabay, UK economist at JP Morgan Chase and Co., said the new
inflation profile will be about 0.3-0.5pp lower than in November with
the risks "heavily skewed to the downside in the near-term but possibly
towards the upside at the end of the horizon".
On the whole, analysts said that the risks to the inflation profile
are still fairly evenly balanced and the likely differences among
members of the committee will probably mean that interest rates are left
on hold until later in the second quarter.
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