U.K. inflation to be weaker in Q1 16

MPC's new meeting and communication process of BoE came into play in August. Under this new approach, the MPC publishes the minutes alongside the policy announcement on the final day of its meeting. In Inflation Report months, the report is also published at the same time, which is now noon rather than the previous time of 10.30am. This means that the market is deluged with information. 

The Inflation Report press conference presents the collective view of the MPC whereas the minutes provide more information on the range of views of individual members (most explicitly in the vote).

Inflation has averaged precisely zero in Q3, a little below the committee's projection of 0.11% yoy. More significantly, in the October minutes, the MPC said that "the near term outlook for CPI inflation appeared slightly weaker than at the time of the August Inflation Report, it now appeared likely to remain below 1% until spring 2016."  

In August, the committee had predicted inflation of  U.K. at 1.2% for Q1 2016 so that represents a material softening of view. Over the three months since the last report, the pound has fallen by about 1½% whereas the oil price has risen by over 4%. 


On the GDP front, the August Inflation Report forecast what it described as the "mature estimate of GDP growth for Q3" at 0.7% qoq; i.e., the MPC's backcast of the growth rate. The initial Q3 estimate, published by the ONS last week, was 0.5% qoq. Typically, estimates are revised up over time so the MPC is unlikely to make a material revision to its forecast path as a result of that shortfall, says Societe Generale.