Tomorrow is what has become called “Super Thursday” for the Bank of England. This is where its latest policy decisions and meeting minutes are released with the Quarterly Inflation Report at 12 pm. According to Bank of England Governor Mark Carney this is more transparent which my financial lexicon now defines as swamping people with so much information that they cannot possibly digest it thoroughly. Although those invited to the Bank of England early will of course have a head start and let us hope that it has not been behaving like the European Central Bank. From the Financial Times.
ECB officials met bankers before key decisions, copies of their diaries reveal.
Also the policy decision will be made today as it is only the public announcement that is delayed until tomorrow so let us hope that nobody is more equal than others in the meantime. On the subject of transparency there are plans for another “improvement” which will reduce the number of meetings from 12 to 8 which as I have pointed out before is something of an irony when you consider it berates other organisations on the grounds of productivity.
What will they be discussing?
The first issue will be economic output where they will find themselves having to repeat what they did in September’s Minutes.
Bank staff had lowered their estimate of Q3 GDP growth to 0.6% from 0.7%.
As it turned out to be 0.5% then UK economic growth has underperformed their expectations as did growth in the United States ( they expected 2.4% annualised there). The UK annual rate of growth of 2.3% is solid but also as bit weaker than it was and below expectations. Accordingly they open with something of a downgrade.
There was also something to note in the breakdown of UK economic growth.
while output in manufacturing and construction is estimated to have fallen in the 3 months to September 2015.
This month’s purchasing managers reports have been very bullish for the UK economy. They opened with a very positive manufacturing report.
The start of the final quarter saw the UK manufacturing sector record its best month of output growth since June 2014,
This was followed by construction being strong at 58.8
the latest survey marked two-and-a-half years of sustained output growth across the UK construction sector
Then services too although perhaps the overall report was allowing for the fact that it can get over optimistic.
The survey data point to GDP rising at a quarterly rate of 0.6% at the start of the fourth quarter, up from 0.5% in the third quarter.
So the outlook is bright but there are issues here. For a start the manufacturing theme has supposedly completely changed from struggling due to currency strength to boom. We heard the British Chamber of Commerce on the struggling theme only yesterday Then of course there is construction where personally I have so little faith in the official numbers I am counting cranes! So better maybe. Let’s hope so.
On the subject of the British Chamber of Commerce you may like to note that I read the speech which said that exports were up over the past 6 years by 25% outside the EU and 6% within. Now here is how BBC Radio 4 Today reported it.
UK exports have fallen to their lowest level for six years. Joe Lynam presents.
Here we have had an unchanged Bank Rate for over 6 years and bond yields are maybe slightly higher than for the last Inflation Report. So any change comes from the exchange rate of the UK Pound £. Here the early thoughts will have been redacted as the UK Pound £ has regained ground. This is mostly due to the promises of Mario Draghi which have moved the Euro exchange rate from 1.36 to 1.41.
As a reminder the only actual tightening of monetary policy in the UK has come from the rise in the value of the UK Pound £ which under the old rule has been worth a 3.75% rise in Bank Rate since the nadir in March 2013.
Yesterday’s Office for National Statistics Economic Review offered some food for thought for the Bank of England.
this extends a run of 11 consecutive quarters of positive quarterly growth during 2013, 2014 and 2015. GDP has risen by 13.3% compared to the trough of the economic downturn in Q2 2009 and is now 6.4% higher than the pre-downturn level of output in Q1 2008.
That is pleasing although of course some of that represents a population increase. As we move to look at wages it looks as if the ONS is trolling the Bank of England.
Growing evidence of tightening in the labour market has been accompanied by a sharp rise in the rate of earnings growth, driven in part by a sharp recovery in private sector earnings growth.
Such signals in the past would have had the Bank of England reaching for the Bank Rate trigger. Although these days we wonder If they can still remember where it is! However again adding a bit of perspective changes things a bit.
Whole economy real earnings are now 5.1% below their 2008 level, while earnings in the financial, manufacturing and retail industries are now 2.5%, 3.0% and 2.1% below their 2008 levels respectively.
Just as a reminder the numbers would be worse with the various RPI alternatives and it is interesting that the ONS only gives us sectors doing better than the mean.
Also this bit gave me a wry smile. As I head towards my sixth anniversary online I recall the “rebalancing” promises of the then Bank of England Governor Mervin King.
While the output of the services industries is estimated to be 11.1% above its pre-downturn peak, the manufacturing industry remains 6.3% below this yardstick.
Perhaps one day Baron King of Lothbury will let us know how that went! Oh and I guess some of you are thinking of “march of the makers” at this point too. It seems the higher the volume of the rhetoric the worse prospects are.
There has been something of a rebalancing as the ONS in what it calls an “experimental nowcast” is beginning to catch up with something that has been a long-running theme on here.
These trends have helped to lift median real income for retired households from 66% of median non-retired household income to just over 75% between 2008/09 and 2014/15.
Of course officially there isn’t any as 2015 has seen the official reading be pretty much 0%. Starbucks have joined the fray as Twitter has been full of complaints of a price rise of the order of 15 pence for a cup of coffee. You see this illustrates how the UK remains a nation with institutionalised inflation as pressure from rents and wages overruns the commodity disinflation of a 25% fall in coffee prices on the exchanges over the past year. Optimists amongst you may be hoping that Starbucks is raising some money to pay its corporate taxes…..
We have had plenty of hot air from Bank of England Governor Mark Carney on the subject of Bank Rate rises since he started his Open Mouth Operations at the Mansion House speech of June 2014. This has qualified him as an interest-rate hawk for Bloomberg which is curious for a man who is yet to actually vote for one! As he has decided to pontificate on climate change there is something of an irony in all the hot air produced. These are promises Eric Clapton style.
La la, la la la la la.
La la, la la la la la.
Meanwhile if the Governor looks north to Iceland he will see that yet again they have decided to be different.
The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to raise the Bank’s interest rates by 0.25 percentage points. The Bank’s key interest rate – the rate on seven-day term deposits – will therefore be 5.75%.
Their economy is indeed running hot – domestic demand growth is running at around 7% – so by no means an exact comparison. But of course some will be thinking of Greece at this point which has followed the opposite path and look where it is.
In terms of numbers let me offer a thought which is that it is symptomatic of where we find ourselves that in both the UK and US a 0.25% rise in interest-rates is considered such a big deal. Back when we were ejected from the ERM in 1992 the UK announced Base Rate increases as it was then of 5% in one day although only 2% ever happened.
You might like to file this section under up is the new down.
Pete Comley who you may recall I helped with some advice on his book on Inflation a couple of years ago has successfully challenged the ONS on rather a basic point.
On September 1st, ONS published the results of a trial to scape food prices daily from the internet . These resulted in headlines such as: “costs rocketing;”cost of basic items has risen by 8% in last year”; and “spaghetti up 20% in a year”. Yesterday, ONS put out a correction saying that they had got the scale inverted and that food prices had actually fallen by 3% a year – a figure now almost the same as the -2% decline in prices seen in CPI.
Or as Paloma Faith put it.
I tell you what (I tell you what)
What I have found (What I have found)
That I’m no fool (That I’m no fool)
I’m just upside down (Just upside down)