Updated BoE economic forecasts show lower inflation path

On growth, "the Committee nonetheless expects the overall pace of UK-weighted global growth to be more modest than had been expected in August. There remain downside risks to this outlook, including that of a more abrupt slowdown in emerging economies." The committee has taken a fresh detailed look at its assumptions about world growth and come to the conclusion that its medium term forecasts for emerging market growth were too high. 

On inflation, "CPI inflation is nonetheless expected to remain below 1% until the second half of next year, reflecting the continuing drag from commodity and other imported goods prices. Beyond that, the dampening influence of sterling's past appreciation on inflation is expected to be persistent, diminishing only slowly over the MPC's forecast period." 

Whilst the report repeats earlier comments that the pass-through from sterling appreciation to lower import prices has been lower than the MPC expected, it chooses to emphasise instead that the effect will last a long time. Speeches by Forbes have analysed this effect in some detail and had seemed to imply that the effect would soon be fading. That is not the view in this report. 

Note, however, that the path rises to 2.2% yoy at 3-year the forecast horizon, which according to Carney is the largest overshoot since 2005. 

"We take that to be a signal that the market should not push out its forecast of the first rate hike too far", says Societe Generale.