The latest in our series of data-risk previews turns the spotlight on the Bank of England’s MPC Minutes from the November meeting which will be published tomorrow (Wed) at 09.30 GMT
On 6th November the Bank of England’s MPC voted to maintain Bank Rate at 0.5% and to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.
The previous change in the rate was a reduction of 0.5% on 5 March 2009 accompanied by a programme of asset purchases (QE) also on that day. The last change in size of that programme was an increase of £50 bln to a total of £375 bln on 5 July 2012.
The last Minutes showed the same two hawks ( Weale & McCafferty) voting for interest rate rises in a 7-2 split on rate rises and the market will be looking to see whether either of those two have become less hawkish or indeed whether any one else has joined them, which seems unlikely given recent data and rhetoric.
I don’t see any great change from the downbeat view expressed by Carney in last week’s BOE monthly inflation report which was cautious to say the least and which will have been formed by the MPC discussions with downgrades on CPI and GDP forecasts and
based on market expectations for an Oct 2015 initial rate hike
Even though the latest UK unemployment report had some encouraging headlines the reality is much different zero hours contracts very much in evidence and with real wages still a major concern as a result, albeit improving slightly last month as inflation softened.
UK wages vs inflation 2008-2014
Expect this topic to feature heavily again in the November discussions.Over the last year the number of workers from the A10 Accession countries employed in the UK rose by 210,000 and public sector pay freezes help to keep pay growth down in the private sector. The level of slack in the UK labour market remains substantial despite Broadbent suggesting it was ” doing a little bit better”.
Last time in this corresponding preview I wrote that
I have long argued here, and elsewhere, that interest rate hikes in the UK would cause a real strain on household income and therefore hamper any recovery and was part of my bearish GBP view. That continues to be the case more than ever. If anything I should be more bullish on GBP given that hikes are being pushed back but my lack of expectation, ney concerns, for the UK economy has sadly been justified and the markets/investors seem to only have greedy myopic eyes on interest rate yield. A stance at which I have long scoffed.
Tomorrow therefore I see the continuation of a 7-2 rate hike vote from this latest set of Minutes, more dovish/cautious rhetoric and little to cheer the bulls with concerns/blame on Eurozone and other overseas economies well to the forefront yet again
Carney & Co still have a very difficult time ahead
I shall be looking again to see whether there’s any sign of Carney losing his grip on matters arising or if he has a real consenus on mid-late 2015 rate hikes now as appears from recent MPC member comments such as that of dep gov Broadbent.The reality of delayed interest rises is now well accepted with major forecasters pushing back their expectations again such as Barclays and HSBC did yesterday.
I expect to see the pound undermined still on this continuing dovish tone but, depending on the prevailing sentiment it shouldn’t tumble on this report alone. With GBPUSD now having achieved many traders/analysts target of 1.5700 there appears to a be enough bids in the dips for it to benefit from anything more bullish, but the rally is still a sell for me until sentiment really changes or the dovish position is well and truly factored in.
I’ll write an update with price levels closer to the time, but in the interim please feel free to ask questions/make observations on any of the above and I’ll reply before the event itself in tomorrow’s build-up.
