FXStreet (Delhi) – Ross Walker, Senior UK Economist at RBS, notes that the UK November’s Inflation Report is harder to decipher than its recent predecessors, principally as a result of a sharp fall in short-term market interest rates. Key Quotes “The MPC’s central projection for CPI inflation, based on those (significantly lower) market rates saw CPI inflation being nudged higher at the two- and three-year horizons (by 3bp and 8bp respectively). Prima facie, this would usually be taken as a mildly ‘hawkish’ policy signal. In fact, November’s Report was more dovish than August’s and the City economist consensus (still for a February 2016 Bank Rate hike on Bloomberg’s poll).” “The clearest forecast illustration of November’s more dovish signal is the lowering of the CPI inflation forecast based on constant market interest rates. On this basis, inflation was lowered by 23bp at the two-year and 20bp at the three-year point.” “By extension the policy inference is that the first Bank Rate hike will come a little later than previously signalled – perhaps Q2 2016 vs Q1 previously.” “External events – most obviously the growing possibility of a US fed funds rate hike in December 2015 – could trigger a more ‘hawkish’ outlook. Still, the RBS forecast remains for the first 25bp Bank Rate hike to come in August 2016, with rates reaching 1.0% by end-2016 and 1.75% by end-2017.” “The dovish Inflation Report was reinforced by the 8-1 vote on Bank Rate at the November meeting. Although this was in line with our forecast and the consensus there was a significant minority of economists (5 ex 26) predicting a 7-2 vote.” “The downward revisions to the MPC’s UK GDP forecasts, largely a reflection of the deterioration in the global outlook, seem to better reflect the balance of risks, though we continue to view the MPC’s outlook for the domestic UK economy as a little too optimistic.” For more information, read our latest forex news.