The Bank of England is about as transparent as it is independent!

After a day when Super Thursday was to be found at Trent Bridge, for fans of English cricket at least, rather than the hyped Threadneedle Street the Bank of England has been on the wires early today. You might think that the opportunity to speak for an hour to the world’s press would give them plenty of time to get their message over. But Deputy Governor Ben Broadbent was up early to be on Radio 4 Today on the BBC which it has reported as shown below.

We [the MPC] are responding to things that are essentially… unpredictable.

“And that means that it would not just be impossible, it would be foolish to pre-announce some fixed date of interest rate changes.”

It is true that the MPC (Monetary Policy Committee) does find things unpredictable as yesterday saw yet another version of what it thinks wages will do in 2015. It has now occupied at some point just about every position possible on that front and we have only just entered August! But as I am sure many of you are already thinking Ben Broadbent is contradicting the Governor Carney. After all does not Forward Guidance mean the opposite of this? It was badged as allowing people to adjust their expectations about what the Bank of England will do. Also Mark Carney has done exactly the opposite in his speeches. Below are some excerpts.

The Governor will add that, in his view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year. (Lincoln July 16th)

There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced. It could happen sooner than markets currently expect. (Mansion House June 2014).

This subject has arisen because of a good question yesterday from Siobhan Kennedy of Channel 4 news. She compared what Governor Carney had said at Lincoln to what the Bank of England was saying yesterday.

The two things seem a little bit confusing.

Governor Carney  looked annoyed and replied.

First thing, I recommend reading the actual speech because I didn’t say….

This is really rather poor as he knows that his speeches are scoured for hints of policy moves and that central bankers speak in euphemisms and a type of code that needs translating, a bit like Klingon for Star Trek fans. Anyway I can put “entirely consistent with what I said” in my financial lexicon for these times and suggest that Mark Carney improves his speech writing efforts so that he does not get misinterpreted.

What about the UK Pound £?

This brings me to another effort this morning from Ben “pinocchio” Broadbent who is being widely quoted as having said.

Sterling Strength Is Down To UK Economy

Some of that is true but it is also true that the Bank of England’s and in particular Mark Carney’s rhetoric about interest-rate rises has also pushed it higher. This is especially relevant in a world where many of our near neighbours have been cutting interest-rates often to negative levels.

The problem that is trade

The reason why the Bank of England is trying to “interpret” matters on this front relates to the UK’s persistent trade and balance of payments deficit. Also we have the issue that we were supposed to be rebalancing towards areas like manufacturing when in fact as yesterdays data pointed out we are still rebalancing away from it. So we have numbers like this morning’s.

The UK’s deficit on trade in goods and services was estimated to have been £1.6 billion in June 2015, compared with £0.9 billion in May 2015.

If we look to the quarterly numbers for a little more perspective we see this.

In quarter 2 April to June 2015, the UK’s deficit on trade in goods and services was estimated to have been £4.8 billion, narrowing by £2.7 billion when compared with quarter 1 January to March 2015.

It is heartening that for once the UK deficit in this area has improved but the underlying theme here is deficit after deficit after deficit. Decades of them in fact and HM Parliament puts it thus.

The UK has had a current account deficit in every year since 1984, although its recent size, both in monetary terms and in relation to the size of the economy, is unprecedented in peacetime.

2014 saw some disturbing numbers because in addition to the persistent issue with trade in good and services the UK saw a sharp deterioration in its primary income position.

The main factor behind the worsening current account position has been a growing primary income deficit, which moved from a £19bn surplus in 2011 to a £39bn deficit in 2014.

So our position which was vulnerable after years of trading deficits has got a further push from our income position. This is a difficult issue as we mull the consequences with thoughts about us being increasingly dependent on foreign funding. It is made more awkward by the fact that investor view such things in binary fashion or to put it another way it will not matter until it does! When that will be is unknown.

Even Mark Carney has been troubled by developments here.

Nonetheless, sustained borrowing from abroad to consume at home is hardly a recipe for a balanced and sustainable expansion.

Although of course I suppose we now have to ask him if he meant something else….

Even worse is the state of play in UK trade statistics which I have discussed before. It is simply unacceptable to put this next to our services numbers which after all represent some 78.4% of our economy.

However, the information on trade in services is mainly obtained from quarterly surveys, in some cases underpinned by larger annual surveys. That means that the data for the latest months are inevitably uncertain.

Even the official view of reliability here has had a hiccup.

Due to a series of errors during 2014, the UK Statistics Authority suspended the National Statistics designation of UK Trade on 14 November 2014.

This is tucked away a bit rather unlike the way that “not a National Statistic” is stamped all over any reference to the RPI.

A ray of light

There have been some rays of light in the recent trade figures.

At the commodity level, the rise in exports reflects a £1.3 billion increase in exports of chemicals and a £1.0 billion rise in exports of fuels. Exports of machinery and transport equipment rose less significantly than chemicals and fuels over the quarter (up £0.6 billion), but accounted for £1.2 billion of the overall narrowing of the goods deficit as respective imports fell by £0.6 billion.

The numbers for chemicals have at times been contradicted by the output levels there but we appear to be exporting more chemical products to the United States which is one of the few places we have a surplus with. The situation regarding fuel is a little murkier as the rise in North Sea Oil & Gas has been driven by tax changes but it is an improvement nonetheless.

However on the other side the only positive spin that can be put on this is that we do not get the credit for the economic boost that we provide to our neighbours in Europe.

This increase in imports results in a record trade deficit with the EU of £7.6 billion for June 2015.


The Bank of England is having a difficult time which is odd when you consider that the solid economic growth and low/no inflation being reported would not so long ago have been reported as an economic nirvana. Speaking of Nirvana perhaps Governor Carney feels he has been getting this message from the media.

Here we are now, entertain us

The problem is that when he has hit the headlines about interest-rates we now find that we get interpretation as we see ch-ch-changes leading to the criticism that he is following Kylie’s advice on interest-rate forecasts.

I’m spinning around
Move out of my way

All this comes as something of a critique of the claimed transparency of the new regime as if it is so transparent why is everyone misinterpreting it?

Also if we return to the unbalanced nature of the UK economy we have seen the Bank of England act to reduce mortgage rates and thereby pump up the housing market. In more recent times it has talked up the UK Pound so it has operated in the opposite direction. No wonder it now wants to “interpret” things. After all for all the talk and hype about tightening what we actually saw yesterday was a small Operation Twist style ease of policy.

Consistent with the Committee’s forward guidance, and as described in a market notice accompanying these minutes, the Committee agreed to re-invest the £16.9 billion of cash flows associated with the redemption of the September 2015 gilt held by the Asset Purchase Facility.


16 thoughts on “The Bank of England is about as transparent as it is independent!

  1. So we have the Deputy Govenor of the BOE saying it would be “foolish to pre- announce” a rate increase, and you have his boss who has been doing exactly that for the last two years. Priceless, you could not make it up!
    Super Thursday – Stupid Thursday

    • Hi Foxy

      You are right to point out that saying “it would be “foolish to pre- announce” a rate increase” directly contradicts what we were told about Forward Guidance which if it means anything means exactly that.
      There is also the addition issue that the hints we have been given about Forward Guidance keep being proved wrong (7% unemployment etc.).

    • Hi Foxy, I disagree with both you and Shaun because you have both taken Ben Broadbent’s comments out of context, please allow me, and the emphasis is mine – “And that means that it would not just be impossible, it would be foolish to pre-announce some FIXED DATE of interest rate changes.”

      Forward Guidance is about providing a general idea of the general direction a CB is taking, although I agree 2 years is a long wait for a pre announced rate rise but Broadbent is saying you can’t give a PRECISE DATE by which time a rate rise will be effected and he’s right if you are data driven. However, if you’re going to be myopically ideals driven then you can give a precise date, watch the market game you, implement the rise come hell or high water and destroy the economy even further! Not a good game plan. My own interpretation of all the various notes on Thursday is that the BOE MAY be limbering up for a POSSIBLE end of year rise PROVIDED there are no negative data shocks.

  2. Hi Shaun, Even the MSM are now questioning the inconsistencies of BOE statements. Surely, if there were to be a cut in rates now after all that’s been questioned about ‘forward guidance’ the institution would be lampooned by the media, and fear of this and the ensuing harm to reputation takes it off the table for now.

    • Hi Zummerzetman

      There would be some deserved lampooning in such a situation. What Mark Carney has tried to do is to present himself as someone who would “really,really,really really really really” (H/T Carly Rae Jepsen) like to raise interest-rates so that he could use this as a PR shield should he end up cutting them. Also we would get the usual proclamations of it being an “unexpected shock” etc.

      He has tried to get some of the benefits of an interest-rate rise without doing it and now the value of the UK Pound has risen he is in something of a spiders web.

  3. Hi Shaun

    Yellen at the US Fed is in the same position as MC and what intrigues me is what the reaction will be when people realise that the Emperor has no clothes, because I discount entirely that IRs will go up, either here or the US. Will the markets breathe a sigh of relief and then embark on another episode of “irrational exuberance”? Or will they react with alarm as they finally realise that the CBs haven’t a clue what they are doing and are just a bunch of overpaid clowns ( i don’t know how much clowns are paid but it’s probably less than CB governors)?

    Although this farce does have its droll side and could be regarded as amusing I don’t really think it is amusing. When I studied economics (45 years ago!) institutions like the BOE did have some clout and were listened to. Now I know that the internet has spread the growth of heterodox opinion – one of its very good points – respect for our institutions is important and my main criticism of people like Carney is that – despite their CV – they are, in some curious way quite lightweight and, by this farce of “transparency”, they degrade the institution itself and this is to the detriment of us all.

    You have shown, as have others, that MC tacks and changes and comes up with a new and equally unconvincing story almost every month. These people are not stupid and must know that their credibility is getting less and less by the month so why, for the sake of us all, do they not change the record?

    • Hi BobJ

      Actually Janet Yellen is very underpaid relative to Mark Carney as she gets this according to Reuters.

      “Yellen, whose salary is set by Congress, earns $201,700 a year.”

      As to whether any jesters earn that much I do not know!

      The situation regarding central bankers is that they have interfered in more and more areas and along that road turned themselves into politicians. Hence the contradictions…

  4. In yesterday’s press conference lovely Catherine Boyle of CNBC asked Governor Carney about the problems with the existing ONS data the Bank uses to make its forecasts. Part of Carney’s reply was: “you see it in our forecasts, both in terms of when we forecast GDP, we forecast what is expect (sic) to come out, but more importantly we forecast what we expect it ultimately to be measured as, so that so called backcast.” When the BoE assigns a GDP growth rate for 2015Q2 in its August Inflation Report, this would be a backcast in terms of the standard economic use of the term, a prediction of an economic variable for a previous period but for which official estimates are not available. Governor Carney seems to be using the word “backcast” in a quite different way. I wonder what “backcast” means in BoE speak or Carney speak?
    Did you notice that in Governor Carney’s reply he said “We’re very pleased to see Sir Charlie Bean be appointed in his new role; WE HAVE SECONDED PEOPLE TO ASSIST HIM. I can think of no better person in the country to do the important work he’s doing.” (Emphasis added.) So the Governor who speaks of housing prices in an inflation indicator the way Savonarola spoke of sin has seconded people to help Mr. Bean make recommendations regarding the UK official statistics. Not much hope then, that he is going to be recommending that the Bank of England target a CPI including a net acquisitions approach to owner-occupied housing..

    It’s very difficult to focus on British monetary policy with this Canadian election campaign going on. The Canadian Broadcasting Corporation has focused its energies on defeating PM Harper to a degree that almost defies belief. This morning a very weak June jobs report came out that showed an increase of just 6,600 jobs, all part-time. The CBC actually flashed a headline on the morning TV news reporting this as a loss of 6,600 jobs. Perhaps they have corrected it by now, but it was certainly a Freudian slip.

    • The BBC here campaigns too:
      “No” in the Scottish referendum.
      “IN” in the EU referendum.
      Campaigning against Jeremy Corbyn for Labour Leadership.
      Against the Putin regime in Russia.

  5. You say we are becoming increasingly dependent on foreign funding but there is two sides to this. You can equally say the rest of the world is becoming increasingly dependent on British paper in order to maintain their own trade position.
    It is very hard to rebalance an economy when that involves swimming against what the rest of the world wants to do.

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