The latest in our series of data-risk previews turns the spotlight on the MPC Minutes from the last meeting which will be published tomorrow (Wed) at 08.30 GMT
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 and the following headlines showing a less than bullish view of the UK economy
- rate of UK growth may ease in Q4
- downside risks to UK growth probably increased
- sees increase in geopolitical risks
- MPC majority see vulnerability to shocks and household debt
- evident increase of volatility over Scottish referendum
- some see spare capacity as a less useful policy guide
- some see wage growth pickin up
- Pound strength continues to put downward pressure on inflation
- Eurozone weakness most significant development this month
You can read the full Minutes here by way of prep for the release
And Ryan had this to say heading into this month’s meeting in a post stating that interest rate rises are definitely on the way. It’s just a matter of when. While reader Xin opined the view in that thread that there may be another hawk or two this time now that the Scottish referendum was out of the way. We can’t rule it out but I consider it highly unlikely.
Since the last BOE announcement we’ve had a plethora of banks pushing back their own forecasts to mid-late 2015 after comments from the likes of BOE chief economist Haldane who expressed concerns on the economy last week:
On balance, my judgement on the macro-economy has shifted the same way. I have tended to view the economy through a bi-modal lens. And recent evidence, in the UK and globally, has shifted my probability distribution towards the lower tail. Put in rather plainer English, I am gloomier.
That reflects the mark-down in global growth, heightened geo-political and financial risks and the weak pipeline of inflationary pressures from wages internally and commodity prices externally. Taken together, this implies interest rates could remain lower for longer, certainly than I had expected three months ago, without endangering the inflation target
In short I don’t see any great change from this cautious view which was essentially expressed at the September meeting and, if anything, should be even more dovish given recent data releases. Even though the unemployment rate was a little better than expected, wages showed no great sign of rising any time soon and this remains a real concern.
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.
I therefore see the continuation of a 7-2 vote from this latest set of Minutes, more dovish rhetoric and little to cheer the bulls with concerns/blame on Eurozone and other overseas economies well to the forefront. I shall be looking however to see whether there’s any sign of Carney losing his grip on matters arising.
I expect we shall see a little knee-jerk lower in the pound on this dovish tone but, depending on the prevailing sentiment it shouldn’t tumble on this report alone. And there appears to a be enough bids in the dips for it to benefit from anything more bullish and/or another hawk beating his/her wings.
I’ll write an update closer to the event, but in the interim do ask questions/make observations on any of the above and I’ll reply when I start my shift in a few hours.
Yep, the margin of error from the MPC is indeed that fine. Carney is right to be concerned