Could be nigh, according to Citi. And it’s all down to — you guessed it — inflation expectations.
From Citi’s Michael Saunders:
The June YouGov survey shows inflation expectations among the general public rising back to match the 2.0% inflation target, after markedly undershooting the inflation target since last November. Expectations of deflation continue to recede. More people expect inflation to exceed 5% YoY in the year ahead than to be negative.
Longer-term inflation expectations are stable, and seem to be well-anchored at about 3% YoY. There is no sign of widespread expectations of longer-term deflation.
With inflation expectations back to the CPI target, signs that recession is ending – and sticky readings for actual CPI inflation – we expect that the MPC will soon end Quantitative Easing (QE), leaving the £125bn (or £150bn) expansion in bank reserves in place but not buying any more gilts. The MPC faces a tactical choice as to whether to stop QE at £125bn or £150bn, and the announcement that QE is ending will probably come at the August MPC meeting (Inflation Report month) rather than July. But, either way, the expansionary phase of QE is probably nearly over.
Related links:
Inflation and the QE exit strategy, an update from the BoE – FT Alphaville
Get your index-linked gilts here while you can! – FT Alphaville
Who’s not bothered about inflation? – FT Alphaville
Prospects for inflation take centre stage – FT