Britain's Easing Inflation Puts End of BOE Rate Hikes Into Sight
Comment of the Day

February 15 2023

Commentary by Eoin Treacy

Britain's Easing Inflation Puts End of BOE Rate Hikes Into Sight

This article from Bloomberg may be of interest. Here is a section: 

The concern is that inflation doesn’t tick down as quickly as the BOE anticipates. Prices increased 11.1% in October, the most in 41 years. That eased in each of the past three months, but the latest inflation reading at 10.1% remains five times the BOE’s target rate.

The BOE will be heartened by news that inflation in the services sector eased in January. It’s one of the key indicators being watched by policymakers, who see it as gauge of domestically generated inflation that is hard to shift once it takes hold.

The other red flag is wage growth, which is now running at the fastest pace on record outside of the pandemic as labor shortages hand workers unprecedented bargaining power. 

The BOE fears inflation could become entrenched as companies keep raising prices to cover their salary costs. There were some signs of hope in the latest data, however, with figures for December alone showing a slowdown in private-sector pay increases.

Eoin Treacy's view

The bond market is signaling it is a little early to declare victory over inflation. Gilts yields continues to steady from the region of the 200-day MA and a sustained move below 3% would be required to question potential for continued upside. 

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