Welcome to Super Thursday! I could perhaps be referring to the Ashes cricket although even in the current turbo-charged world of decreasing half-lives for modern Test Matches a one-day result would be quite something. Instead I am referring to the Bank of England which has made various changes to its procedures. The most important is that rather than voting today it did so yesterday and now hangs onto it for a day before announcing it at mid-day as before. Also journalists will be locked-in at the Bank of England from 10 am and given information which is market sensitive and could be extremely market-sensitive.
At mid-day we will not only get the results of the vote but also the official record or Minutes which used to be released just under a fortnight later. As today is Quarterly Inflation report day we will also get that followed by the Press Conference at 12:45 pm. So there will be a data deluge hence the title of Super Thursday.
Why the change?
The official reason is that transparency will be enhanced and to stop speculation that took place when the documents, votes and data were released at different times. Also it is true that Mark Carney likes change and perhaps is resembling a dog making its territory. As a “dedicated follower of fashion” it is no surprise that he is adopting a system which resembles that used by the US Federal Reserve.
There are problems here though as the US system often leads to confusion rather than transparency! Indeed that has been true in 2015 so far. Releasing an enormous amount of information creates a data overload and uncertainty as everyone searches for that crucial piece of news. Also the new system has an obvious issue with security when journalists are informed a couple of hours ahead of time and the actual vote is a day before. Whilst there are claims this will be water tight I have seen Bank of England briefings live tweeted when they should not be. Let us hope that today everyone will be singing from the hymn sheet provided by the Go-Gos and the Fun Boy Three.
Our lips are sealed
Our lips are sealed
Our lips are sealed
Mark Carney could do with this working as his other main reform of Forward Guidance has mis-fired so far.
What about today?
Here there is finally a chance of something happening as there have been hints, noticeably in the last Minutes that some MPC (Monetary Policy Committee) members are about to vote for a hike.
For a number of members, the balance of risks to medium-term inflation relative to the 2% target was becoming more skewed to the upside at the current level of Bank Rate…… the decision between holding Bank Rate at its current level versus a small increase was becoming more finely balanced.
Are there grounds for this? There are two major factors which are an economy growing at an annual rate of around 2.5% plus a pick-up in wage growth. As we have just had two years of growth there are fears that at the policy horizon (18/24 months ahead) the UK wage situation could be over-heating and inflation could be on the march again as we note that services inflation has only fallen to around 2%.
How many will be swayed by this going forwards? Temporarily 3 and then 2. The reason for this is that David Miles has his last meeting and has hinted he may vote for a rise. This would be quite a volte face on his past record of being an enthusiastic voter for QE (Quantitative Easing) and indeed someone who would have given us more of it just as the economy turned around.
Against this are various factors. The most obvious is that consumer inflation is currently oscillating around zero and that commodity prices have dipped again with Brent Crude Oil falling to below US $50. Also the UK Pound £ has been strong overall with its rise on a trade-weighted basis equivalent to a 1.5% in Base Rates over the past year. This means that UK exporters are being squeezed after a boost to house prices which is certainly not the sort of rebalancing promised by previous Governor Mervyn King. Indeed it is the sort of policy failure which led to suggestions monetary policy should be taken out of the hands of politicians!
In terms of the UK Pound £’s strength there have been a couple of symbolic moves this morning as it has reached 100 versus the Russian Rouble ( I covered the topic of Russia on the 29 th of July) and 20 versus the South African Rand. Of course they are weak currencies but the world is one of currency wars right now.
Also some of the recent data has shown signs of not supporting the Bank Rate rise case. For example we saw a small rise in unemployment in the last set of data. If we stick with the labour market the wage rises are still nascent and there is evidence that productivity is improving if we compare output with hours worked. Thus the wage inflation case has weakened. This morning has also seen a disappointing industrial production release.
The preliminary estimate of GDP, published on 28 July 2015, contained an estimated increase of 1.0% for production in Quarter 2 (Apr to June) 2015. This release of data estimates that production increased by 0.7%….
That is in itself not quite enough for a 0.1% GDP downgrade but there is a message there. Also in the latest quarter there was 1.06% of production growth from mining and quarrying (essentially North Sea Oil and Gas), so without that there was a contraction including a 0.18% downwards push from manufacturing.
Putting it another way a Bank Rate rise would be for the services sector which is now 78.4% of the UK economy.
One way of this actually being Super Thursday would be for the Bank of England to raise Bank Rate today! After all we have now had more than 6 years of torpor and not a little ennui as what was an emergency Bank Rate of 0.5% has persisted. The case for a change could be made around the fact that the acute phase of the emergency is now over. It is also my view that the UK economy needs higher interest-rates but missed the chance back in 2010 when inflation was about to rise (please see my blogs from back then). That should have taught the Bank of England a lesson which is that opportunities can be fleeting in time. Rather like a London Bus if you miss one it may be a while before you get the chance again (especially when there is a Tube Strike).
I will be updating today’s blog as news comes out but below is a link to my interview earlier on Morning Money on Share Radio.
As to the Bank of England regime under Mark Carney then here is a theme song for the loudspeakers. From Sheryl Crow.
A change would do you good
A change would do you good
12:30 pm Update
We have two failures for Forward Guidance. The first was the way that the Bank of England website collapsed, did nobody think and plan ahead? The second is that for all the talk and hype about Bank Rate rises there was only one vote for that. It was not so long ago that some thought the Bank of England was steering people towards a hike today.
Also there was a policy easing today which raises a wry smile after all the talk about a tightening. Operation Twist continues.
reinvest the £16.9 billion of cash flows associated with the redemption of the September 2015 gilt held in the Asset Purchase Facility.
This could be a very awkward Press Conference for Mark “interest-rates could rise sooner than markets current expect- June 2014” Carney.
However someone at least is having a Super Thursday (h/t @rgcricket ).
Stuart Broad is the first bowler ever to take 7 wickets before lunch on first day of a Test.