Inflation Report could raise rate expectations

This week’s Bank of England Inflation Report looks likely to include a downward revision to the MPC’s forecast for the unemployment rate, bringing forward the date at which it is expected to hit the 7% level at which the Committee will re-assess policy under its forward guidance.

The Committee will no doubt emphasise again that the 7% threshold is not an automatic trigger for a policy tightening. But the apparent failure so far to impress this point on the markets points to the risk of a rise in interest rate expectations.