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.