FXStreet (Delhi) – Research Team at Societe Generale, suggests that the forthcoming BoE inflation report is likely to reinforce dovish outlook but still implies next move is a hike. Key Quotes “This being an Inflation Report meeting, the markets will have the task of simultaneously digesting the policy announcement, the report, and the minutes of the meeting. The trade weighted index has fallen by nearly 7% since early November to about 88 whereas the MPC’s conditioning assumption is for a fall from 92 in 2015 to 91 in 2016. This might lead to an upward revision of the inflation profile in the back half of the forecast period (the MPC analysis of the pass-through effects to inflation of exchange rate changes suggests the effect takes several years to fully work through). The market rate profile sees the risk of a cut not a hike – this represents a big communication challenge for Carney Since November, the curve has flattened further and has even become negatively sloped. It is currently predicting that the risks for the next move are for a cut, not an increase. By October 2016 the market sees a 35% risk of a cut which only reverses to fully price in a rate increase by a 2018. This represents a significant communication challenge for the MPC. Its economic forecasts in its forthcoming report will be conditioned on a rate path that is downward over the next year whereas all the communication of the committee has been to say that the next move in rates will be upward. The curve does not predict a rate increase until 2018. How can they reconcile these conflicting signals? Perhaps the inflation forecast they present will be even further above 2% than was the case in November. That would then imply that the Bank would have to tighten earlier than the curve predicts to bring inflation back to target by the three-year horizon. The other possible factor he could mention would be market concerns of a vote to leave in the Brexit referendum which might be depressing the market curve.” For more information, read our latest forex news.