Is this a good day to bury bad news at our banks and the Bank of England?

Today the Bank of England should be taking centre stage with its forecasts for UK economic performance in and at its Quarterly Inflation Report. Unfortunately for it some of the demons of its past have hit the news wires only a few hours before it was due. Here we have the relevant announcement from the UK Financial Conduct Authority.

The G10 spot FX market is a systemically important financial market. At the heart of today’s action is our finding that the failings at these Banks undermine confidence in the UK financial system and put its integrity at risk.

Okay and the action is?

The Financial Conduct Authority (FCA) has imposed fines totalling £1,114,918,000 ($1.7 billion) on five banks for failing to control business practices in their G10 spot foreign exchange (FX) trading operations: Citibank N.A. , HSBC Bank Plc , JPMorgan Chase Bank N.A. , The Royal Bank of Scotland Plc, and UBS AG.

This is rather awkward for the Bank of England in its role of supervisor of such markets. Of course this doubles up its “hear no evil,see no evil,speak no evil” attitude to LIBOR interest-rate fixing. In other words the politest way of putting these events is that it was asleep at the wheel. In truth we need to add to that the reality that it was given warnings but did not act on them. It is hard to see how a regulator could have failed more comprehensively.

Never fear there has been an enquiry!

The enquiry has already found that the Bank of England is innocent.

No Bank of England official was aware that this improper behaviour was happening.

We are left wondering what were they doing then. But then of course we are reminded of the words of Otto Von Bismarck and Jim Hacker of Yes Minister.

Never believe anything until it is officially denied.

It would appear that these places never run out of whitewash! As to possible rewards for the author well Anthony Grabiner is already a Baron so we will have to see.

Oh and we only had to wait until around 9:30am (just be chance at the same time as the labour market statistics) for there to be something of a change. From the Wall Street Journal.

The Bank of England has dismissed its chief foreign-exchange dealer for breaching internal policies,

Speaking of Barons

It has been a busy 24 hours for people with such titles as it was only yesterday that I was analysing the proposals of Baron Adair Turner. It would be remiss of me to point out that the fines imposed above cover the period below which is pretty much his tenure as chairman of the FSA.

We found that between 1 January 2008 and 15 October 2013.

Perhaps he will write another opinion piece in the Financial Times as we wonder if the other one was a type of smokescreen.

Rewards for failure

I am reminded that the Deputy Governor for financial stability over most of this period was Paul Tucker. If you simply google his name and LIBOR there will be rather a lot of entries! The same Paul Tucker was also in charge over the period of FX manipulation too. Of course the official story is different.

a towering contribution to the international economic community……Paul Tucker has done an outstanding job……he’s done a really good job;

His New Year Knighthood was for services to central banking as we wonder exactly how that was defined?! There was one area though where somebody benefited if we look at the fact that the accounts of the Bank of England valued his pension pot at just over £5.7 million.

Good news for the public finances

That is a heading I rarely get to write but what did we do for public-sector revenue before we started fining the banks?

Good news on wages

This has been an area that has been something of a laggard in the UK economic recovery so far. Today there has been some better news although I am afraid that I have to report that the BBC, the Financial Times, Business Insider and City-AM have in their rush to report real wage growth put out what I consider to be misleading reports. Here is the data release.

Pay including bonuses for employees in Great Britain was 1.0% higher than a year earlier. Pay excluding bonuses for employees in Great Britain was 1.3% higher than a year earlier.

Firstly this is better news as the numbers are higher but as you can see total pay growth is still behind the annual rate of inflation. That is quite clear on the official ONS chart which is being retweeted almost continually as proof that wages are now above inflation.

Actually if we dig a little deeper there is even better news for the single month of September as total pay rose by 1.4% which is above the official inflation rate of 1.2%. So some real wages growth albeit of a very small amount after a very large drop.

Added to this we saw continued growth in the employment numbers.

There were 30.79 million people in work. This was 112,000 more than for April to June 2014 and 694,000 more than for a year earlier.

What about other measures of real wages?

These are not as positive because the Retail Price Index remains higher than wage growth.

The all items RPI annual rate is 2.3%, down from 2.4% last month.

Actually it is even below the “improved” variant of it.

The all items RPIJ annual rate is 1.6%, down from 1.8% last month.

So on this measure things have improved as wage growth has risen and inflation has fallen but sadly the fall in real wages continues.


This has been a very bad day for both the UK banking sector and the Bank of England. Indeed we need to consider this phrase as we think of the regulators we have had such as the Bank of England and the FSA as encapsulated by Baron Adair Turner.

Quis custodiet ipsos custodes

They failed us and if the whitewash style enquiry is any guide than they will fail us again in the future.

Such news is a shame on a day when the actual economic news was better and let’s face it we need every scrap of good news we can get. If you feel like some number-crunching you may like to check how many news organisations have repeated (some might say copy and pasted) what I consider to be misleading numbers on real wage growth.

As to the Bank of England Inflation Report I will add more later if necessary, but some details have already caught my eye.

Inflation is expected to remain below the target in the near term, and is more likely than not to fall temporarily below 1% at some point over the next six months.

Growth is projected to be a little weaker than in August.

Much more of that and my suggestion that a Base Rate cut may be on the cards will start to go mainstream.

Oh and a letter explaining sub-par inflation would be a first under the current regime as all the others have been for above par inflation.


17 thoughts on “Is this a good day to bury bad news at our banks and the Bank of England?

  1. Hi Shaun,

    Thank you for this insightful post.

    So sluggish wage growth continues to lag behind unusually low estimate of inflation then, not ‘statistically the longest squeeze in living standards since WW2 is over’ as I saw on the news earlier!

    • Hi Zummerzetman

      As ever it depends on which inflation measure you choose. As I put in the post the single month of September saw wage growth some 0.2% over inflation. However the monthly series is volatile so we will have to see if this is sustained.

      Compared to any of the RPI measures we are still in negative territory for real wages. Is this a bad time to point out the government was using it as its inflation measure with regards to rail fares?

  2. Once again people have been deliberately, premeditatedly, defrauded, stolen from, and the thieves are not being held to account.
    They were doing this for PERSONAL benefit not company benefit, and should pay the price.

    • Yes, prosecute the individuals for fraud and ban them from the industry, just like medical malpractise. But the banks need to be held to account too. I’d suggest the banks be told “3 strikes and you’re out”” – a credible threat to delicense offending banks should quickly clean up such practices.

    • the editorial comment in the Evening Standard tonight reads “When will the bankers learn from their mistakes?”
      “Mistakes”? This sort of crappy journalism makes my blood boil. These *ankers weren’t mistaken. They were perpetrating deliberate fraudulent activities for financial gain.
      Once again those criminally liable just walk away laughing at us and the media do their very best to ensure the general public don’t realise what’s really going on.

  3. Hello Shaun,

    Sometimes the broken watch is correct !!

    jeez on the BBC lunchtime the il-liberal wonga man was push to choose the BOE forecast for wage inflation as he wouldnt comment

    no one asked how good the BoE forecasts were or why any organization with such a crap record should be believed now !

    most vexing indeed!!


    • Hi Forbin

      The wages fairy was out in force as the Bank of England gave its forecast for 2015. I would love for it to be 3% but there is scant evidence to back that up so far in the official data. Perhaps like this year they will halve their forecast half way through the year?

      At the press conference Ed Conway of Sky News mustered up his courage to ask this.

      “But are you worried – more broadly – this is a broader point,
      which is – are you concerned that, within the City, for many
      economists and dealers, forward guidance essentially was
      seen as a bit of a joke?”

      Also I note he said this.

      “Is this a good day to bury bad news amongst all of that other

      Meanwhile the oil price continues its fall as it dips below US $80 per barrel for Brent.

  4. As I recall wages were forecast to outstrip inflation this year now the hope is for a real-terms 2% increase next year. I think there is an element of propaganda here – talking things up to improve confidence. It would be nice if we were treated like adults once in a while though!

  5. Hi Shaun,

    I was looking at some wage data the other day and what is very apparent is that wage variations are regional and skilled based.

    The biggest regional winners are London and the South East, no surprises there and by sector the construction industry is the fastest growing with shortages of many skilled trades, followed by IT and then senior managers, especially in procurement. The losers are going to continue to be the unskilled. Over the next 20 years there are going to dramatic changes with those in skilled repetitive jobs being largely replaced by AI and robots. From the 1980s to now, technology and the resultant productivity improvements has mainly hit unskilled and semi-skilled wages. The next generation of intelligent systems, which is already happening, will impact many middle class jobs from accountants to surgeons. The safest areas will be creative industries and face-to-face jobs as it is very difficult for technology to currently replace these.

    With the BOE and FCA both asleep at the wheel, it will probably be cheaper and more effective to replace these highly paid, professional sleepers, sorry regulators with expert systems, so all of the major bank’s trades are analysed and any discrepancies investigated, much like share trading is for insider dealing. Incidentally, this problems will continue to happen where we live in an EU expensive, productivity draining, bureaucratic, highly regulated, box ticking system. Don’t think, don’t question, don’t investigate, just cover your back by ticking the right box!

    When I worked in the scientific civil service we had a saying: “You can lead a bureaucrat to knowledge but you can’t make them think!”

    • Hi Rods

      I agree that many things are in a state of flux now and occupations which have so far not been affected by technology increasingly will be. I suspect that the bureaucrats will put themselves in charge of the AI robots and computers. On that road I wonder how long (Skynet) the AI machine will take to spot that the bureaucrats offer negative value?

  6. Just in time for the election allegedly real wage growth materialises by ignoring RPI and/or house price inflation as more genuine measures, not to mention that year of negative wage increases will never be reclaimed. If we’re doing so well how come the deficit is barely declining and ’emergency’ rates are still in situ – pay is so poor, work intermittent, part time, self employed dead end unproductive or zero hours that many ppl require benefits just to survive. The (un)employment statistics are just as corrupt – employers and employees are able to avoid making national insurance contributions or at least minimising them with low weekly pay and/or hours.

    Eventually the edifice/chimera will be shattered, meanwhile we have to tolerate lies and more lies, abdication of responsibility and passing the buck I.e. corruption

    • Hi Seasiders

      The debate over economic figures and statistics is long lasting as this from Yes Minister from the early 80s suggests.

      “Hacker: The school leaving age was raised to 16 so that they could learn more, and they’re learning less!

      Sir Humphrey: We didn’t raise it to enable them to learn more! We raised it to keep teenagers off the job market and hold down the unemployment figures.”

      It was pretty much ever thus…

  7. What really grips me is the fact that although we’re fining these institutions,tehy’re effectively jsut handing taxpayers back some of their SLS,HTB1,HTB2,ZIRP,FLS, funded profits.

    Paul Tucker is a joke.
    ‘In one email to Diamond, dated 25 October 2008, Tucker writes in the subject field “Struck that your [government guaranteed bond] was issued at around 140 [basis points] over gilts”. In the body of the email, Tucker just writes “that’s a lot”. Diamond replies by offering to meet Tucker.

    This email was sent just days before a note of a discussion between Tucker and Diamond that was discussed by MPs on the Treasury select committee last week when Diamond sent an internal email on 29 October 2008 detailing a conversation with Tucker. The email led to some confusion in the bank about whether the central bank was encouraging Barclays to cut its Libor submissions although when he appeared before MPs Diamond insisted he did not believe this to be the case. ‘

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