With all the excitement in Spain and Greece of late, it’s been easy to miss a rather big move in British interest rate expectations.
Consider this chart of the November MPC SONIA index future. According to friends in sterling overnight markets, the pricing here suggests a roughly 45 per cent chance of a UK base rate cut, come November. Read more
The Bank of England’s Monetary Policy Committee voted to keep interest rates at their current record lows on Thursday and authorised further gilts purchases totalling £50bn, in line with economists’ expectations, reports the FT. The move brings the size of the total gilts purchasing programme, known as Quantitative Easing, to £325bn and suggests that, despite recent signs that the UK economy is picking up after a trough in the middle of last autumn, the Bank’s policymakers do not feel confident there is enough momentum for demand to build on its own. Read more
Told ya.
From Reuters… Read more
The Bank of England has overestimated the boost to the economy from quantitative easing and further asset purchases will have less of an effect than the Monetary Policy Committee expects, according to research by the Bank for International Settlements. The FT reports an article in the latest quarterly review from the influential central bankers’ bank says the initial £198bn round of quantitative easing lowered yields on government debt with outstanding maturities of between five and 25 years by 27 basis points on average. A study published by the BoE in September said without quantitative easing, the yields on five and 10-year gilts would have been 100 basis points higher. It concluded that the purchases had boosted growth by between 1.5 per cent and 2 per cent. Read more
Ben Broadbent, a member of the Bank of England’s interest rate-setting committee, told the FT that policymakers would not be able to insulate Britain from a deepening crisis in the eurozone, even if it significantly increased its money-printing operations. In his first newspaper interview since joining the monetary policy committee, he said that the scale of some problems were such that “one cannot offset them”. Mr Broadbent was keen to stress that the Bank was not yet expecting a disaster to occur in the eurozone. Instead, he said that the outcomes were “bimodal” – likely to be either good or bad with less chance of something in between – and the Bank was likely either to increase quantitative easing or purchase less than £75bn of gilts with money created by the Bank, depending on the results of European decisions. Read more
Please, please, please don’t accuse the Bank of England of getting involved in currency wars.
It hasn’t deliberately deflated the Great British Krona Sterling in the past couple of years. In fact, monetary policy has has nothing, repeat nothing, to do with sterling’s decline. Read more
And so, the softening up process begins.
Surely that’s the only way to read Monday’s Quarterly Bulletin from the Bank of England, which featured the following article on QE. Read more
The minutes of the last MPC meeting are out and here’s the price action in the Great British Krona.
The lower-than-expected UK inflation figure for June is reviving chit chat of a second round of monetary easing, first sparked by last month’s minutes from the Monetary Policy Committee.
The economics team at Credit Suisse are joining in — not that they think it will happen any time soon; as least, not so long as PMI remains above the 50 mark. Read more
The Bank of England governor is a rule-breaker, just like Argentinian football star Diego Maradona.
So says Malcolm Barr over at JPMorgan: Read more
Citigroup strategist and erstwhile FT blogger, Willem Buiter made headlines last week.
The former Monetary Policy Committee member, it was reported, took to the stand at a special hearing into ‘accountability at the Bank of England’ held by the UK Treasury Select Committee, which saw some hefty criticism of the Bank. “Buiter … was especially violent in his remarks,” the Independent reported. Read more
The aggregate UK employment figures released on Wednesday were optimistically received although they should have been treated with caution.
The LFS unemployment rate fell to 7.8 per cent from 8 per cent in the three months to February with employment increasing by 143k. The less widely-followed monthly path data showed that spot monthly unemployment rate in February fell to 7.7 per cent from 8.2 per cent. The claimant count for March was less promising but essentially flat, up by 700. Read more
Some of the MPC may be exhaling a premature sigh of relief at the widely rumoured inflation *non-fail news* out Tuesday morning.
Analysts have been quick to note that the first below consensus CPI result for 10 months (4 per cent year-on-year vs 4.4 per cent expected) was driven by a fall in food prices (to 4 per cent y-o-y from 5.7 per cent in February), especially those of seasonal food. Core CPI, which excludes food, was only 0.1 percentage points off consensus expectations: 3.2 per cent year-on-year versus 3.3 per cent expected. Read more
FT Alphaville loves data mysteries — and there’s something particularly ironic about fourth-quarter UK productivity data not being, erm, produced on time.
Anyway, the UK’s Office for National Statistics said earlier this week that the Q4 productivity numbers scheduled for Wednesday would be delayed until April 7 because of “data quality issues.” Read more
For all the talk of operation Odyssey Dawn, it was Wednesday’s Budget that tried to navigate between two monsters: rising inflation and slowing growth.
Guest editor Gavyn Davies made this point during FT Alphaville’s special Markets Live session this afternoon: Read more
The minutes of the Bank of England’s MPC meeting in March released on Wednesday morning show that the committee lines up in exactly the same way as it did last month.
One member (Posen) wants to ease monetary policy, by increasing QE. Five members (King, Tucker, Fisher, Bean, Miles) voted for no change at all. Two members (Weale, Dale) voted for a 25 basis points increase in bank rate. And one member (Sentance) voted for a 50 basis point increase. Read more
This is a very big day for the UK economy, with the MPC minutes at 10.30am [GMT] and the Budget at 12.30pm, so I am going to kick off with that.
I wrote a commentary on UK macro economic strategy for the FT on Wednesday, which can be found here. In brief, I argued that the UK has embarked on a radical plan which involves a major shift in the balance between fiscal and monetary policy. This is much more dramatic than anything we have seen in the recent past. Read more
What price a May (or even April) rate hike after Tuesday’s higher than expected inflation reading? What price a mea culpa from Mervyn King?
The Bank of England’s interest-rate-setting body on Thursday voted as expected to hold rates at their record low of 0.5% and to leave the Bank’s £200bn gilts-purchasing programme of quantitative easing unchanged, reports the FT. The Bank’s monetary policy committee has struggled to balance policy between often contradictory signals from official data and private sector surveys, as it considers whether to raise its ultra-low rate. Minutes of the last MPC meeting in February showed that three of nine members favoured a rate rise – two by a quarter-point, one by a half-point – but the remainder wanted evidence of increased economic activity. In Lex’s view, however, disagreement within the MPC only increases the impression of “intellectual confusion”. Read more
The much-awaited February Bank of England minutes are out — and lo and behold — it looks like Monetary Policy Committee member Andrew Sentance was right.
They were more interesting than usual. Read more
… is the title of the 1973 album from ‘prog rockers’ Genesis, and it also sums up the UK’s inflation problem, according to Bank of England hawk, Andrew Sentance.
In a speech at the Institute of Economic Affairs ‘State of the Economy’ conference on Thursday, the Monetary Policy Committee member says the value of the pound needs to be a key area of focus (not neglect) for the UK’s central bank, if it is to have any hope of mitigating the impact of global inflationary pressures. Read more
The Bank of England’s monetary policy committee on Thursday voted to hold interest rates at their current record low of 0.5%, as widely expected, and to keep its stock of asset purchases at £200bn, as fresh economic data on Thursday appeared to back the MPC’s view, reports the FT. Economists are now looking to the Feb 16 publication of the Bank’s quarterly Inflation Report for guidance on monetary policy. The Office for National Statistics reported that UK industrial output in December rose more modestly than had been expected, possibly due to harsh winter weather. But in a separate analysis, the FT says that unexpected contraction in output and surprisingly high inflation, with CPI at 3.7%, are two shocks that spell misery for families and trouble for the Bank of England. Read more
Citigroup’s Michael Saunders and Ann O’Kelly, on this week’s Bank of England rate decision:
We expect that the MPC will leave rates on hold at the upcoming [February 10] meeting. However, we believe it may well be a much closer call than many expect, and there is a decent chance that the MPC will tighten policy. If it does decide to tighten, a 25bp hike is the most likely option, with little chance of either a 50bp hike or an early reversal of QE… Read more
The 10-year gilt yield hit an eight-month high on Tuesday…
UK CPI inflation surged to 3.7 per cent in December, notching up the biggest ever month on month rise of 1 per cent. The market had been expecting a figure closer to 3.3 per cent, a fact which now creates some uncomfortable reading for the Bank of England’s Monetary Polciy Committee, says FT Alphaville. Another point to bear in mind is that the 3.7 per cent rise comes even before January’s VAT increase has taken effect. Key drivers for the increase came from price rises in air transport, petrol, diesel, gas and food between November and December, according to the Office of National Statistics said. Read more
Some comment ahead of the Bank of England’s Inflation Report later on Wednesday.:
From BarCap, on how the market might react: Read more
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