Well that went well for us shorts.
Mr Carney has played right down the middle of the road and that has disappointed those expecting to hear noises about rising rates. What is supposed to be a report on inflation always turns into an MPC press conference and we heard the same rhetoric that has come before it.
My basic take from the comments is that while the exchange rate can and will account for the fortunes of the UK economy it doesn’t seem to be high on the agenda for the BOE. I sensed a reluctance from Carney to be drawn into naming and shaming the pound and it’s effect so I’m quite surprised that the pound is still slipping.
Rates rises are still bound by the forecasts, which haven’t changed and the lower inflation has been attributed to “one off” factors and not a sign that we have underlying price pressures. That’s a million miles away from the problems across the channel. Those issues may still develop but there’s no signs that the BOE see that happening.
Wage growth, slack and productivity are still very much an issue but they see signs of improvement. We’ll have to monitor those in the data.
Overall it didn’t have a very dovish bias and I see no reason for the pound to continue to react on those reasons alone. Probably the biggest warning, and what may be behind the current moves, is that he highlighted that the UK has to take the next step in the recovery and that comes from business overseas. It sounds to me like he’s saying domestically we’ve come as far as we can and we need to get exports growing. That’s still a hard task considering our biggest trading partners economy is still looking anaemic.
We’re not there yet but we need to watch out for a further flattening of the UK economy. If it starts to do more and go backwards then the pound could be in real trouble.
Mark Carney: A more subtle silver tongued rogue than Draghi
