{"id":2793,"date":"2009-05-13T12:56:26","date_gmt":"2009-05-13T12:56:26","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=2793"},"modified":"2025-03-27T15:48:50","modified_gmt":"2025-03-27T15:48:50","slug":"uk-inflation-report-mpc-much-gloomier-than-treasury","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=2793","title":{"rendered":"UK Inflation Report: MPC much gloomier than Treasury"},"content":{"rendered":"<p>The latest <em>Inflation Report<\/em> is downbeat and will douse recent hopes that the recession is nearing an end. The MPC is arguably too gloomy, particularly about the balance of&nbsp;risks to activity, and may be underestimating the potential boost to the economy from its expanded QE operation.<\/p>\n<p>Key points:<\/p>\n<ul>\n<li>The central-case GDP forecast is significantly weaker than in February &ndash; see chart. This reflects both a lower-than-expected first-quarter outcome and a slower recovery in 2010-11, with the MPC more concerned about credit supply constraints than in February (odd given improvements in the last credit conditions survey).<\/li>\n<\/ul>\n<ul>\n<li>The central-case path &ndash; estimated from eyeballing the fan chart &ndash; implies further falls in GDP in the second and third quarters followed by marginal expansion in the fourth quarter and first quarter of 2010. Trend-like growth resumes in the second quarter of next year. GDP returns to its peak level only in early 2012 &ndash; a year later than in February.<\/li>\n<\/ul>\n<ul>\n<li>The central-case path is notably weaker than the Treasury&rsquo;s Budget forecast. The fan chart implies annual average GDP changes of an estimated -3.9% this year, +1.0% in 2010 and +2.6% in 2011 versus the Treasury&rsquo;s -3.5%, +1.25% and +3.5% respectively.<\/li>\n<\/ul>\n<ul>\n<li>Cleverly, however, the MPC has concealed the extent of its difference with the Chancellor by expressing its gloom partly in a negative risk skew to the central-case forecast. The mean projection, taking into account this skew, appears to be for GDP growth of only 0-0.25% in 2010 and 1.5-1.75% in 2011 &ndash; far below Mr. Darling&rsquo;s assumptions.<\/li>\n<\/ul>\n<ul>\n<li>The MPC&nbsp;underestimated the inflationary impact of sterling&rsquo;s plunge and has revised up its near-term CPI projections. The change, however, is modest: inflation averages an estimated 1.6% in 2009 in the central case versus 1.4% in February. Currency effects are judged to be offset by a wider margin of spare capacity and a larger fall in household energy tariffs than assumed in February.<\/li>\n<\/ul>\n<ul>\n<li>Longer-term inflation projections have also been revised higher but remain below 2% as far as the eye can see. The central-case forecast for the first quarter of 2012 is an estimated 1.6% versus 1.1% in February. The MPC may be lowballing the numbers in an effort to keep inflation expectations anchored against a backdrop of QE and fiscal profligacy.<\/li>\n<\/ul>\n<p><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"\/storage\/UK-GDP-BOE-forecasts-130509.jpg?__SQUARESPACE_CACHEVERSION=1242221402028\" alt=\"\" \/><\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The latest Inflation Report is downbeat and will douse recent hopes that the recession is nearing an end. The MPC is arguably too gloomy, particularly about the balance of&nbsp;risks to activity, and may be underestimating the potential boost to the economy from its expanded QE operation. Key points: The central-case GDP forecast is significantly weaker [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-2793","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2793","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2793"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2793\/revisions"}],"predecessor-version":[{"id":5102,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2793\/revisions\/5102"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2793"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2793"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2793"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}