Six quarters of mostly below-trend growth are taking their toll. The trend in rising unemployment and muted wage pressures suggests underlying inflation in the UK could ease further, keeping the door open for a possible rate cut later this year.
Growth looks more likely to stay below than to rise above 2.5 in the foreseeable future. A further decline in inflation, coupled with mediocre growth, will likely tilt the balance towards further rate cuts later this year.
While the surge in key leading indicators strengthens the case for a further rate hike in the near future, the absence of second round effects from the oil price spike and the decline in headline inflation in late 2005 argue against any haste.
There could have been a heated discussion, with the doves preventing the acceleration in the pace of rate hikes the hawks may have wanted.
A May rate hike remains unlikely, in our view.
The ECB probably has not found a consensus yet on rate policy beyond Dec. 1. For this reason, the ECB is unlikely to provide any clear Fed-style guidance on the future course of rates,