Yesterday was a rather extraordinary day in the life of the Bank of England which had a Back to the Future feel about it. The Bank of England has not had a person with a peerage at the helm since the period 1944-66 yet there was the equivalent of what is called in cricket ” a future England captain” in front of the Treasury Select Committee who is the daughter and hence I believe second in line to be whatever the daughter of both a Viscount and a Baroness becomes. This was of course Charlotte Hogg who was described by the Guardian thus.
Friends say the 42-year-old was destined for greatness from birth, but say she inherited a “stunning intellect” along with her establishment surname.
I am not sure I would want friends like that and the City slang for being well off or “minted” needs to be replaced with moated in this respect.
Charlotte Hogg grew up in a grade-II-listed moated country house where evenings were spent debating Thatcherite privatisations, economic policy and even European agriculture with whichever leading member of the cabinet had popped round for supper.
Twitter has its own way of covering such things.
Charlotte Hogg’s Family Tree needs to have a whole chapter to itself in Debrett’s… ( h/t @CoxeyLoxey )
If we move to what took place then one of my rules of thumb was in play. This goes as follows. If an establishment figure is reported as intelligent then the number of times that happens the more I subtract from their expected intelligence. In the way that Oliver Letwin went from a man with a “great brain” to one stuffing important papers in rubbish bins. I note therefore how often Charlotte is described as intelligent in the Guardian article.
This section started badly when Charlotte was accused of misrepresenting changes in inequality as wealth inequality has risen since 2007. She was referred to the 2012 Bank of England paper on this and seemed vague about it. It got worse when Charlotte was quizzed on issues of how QE might ever be reversed which is supposed to be part of her remit as Deputy Governor for markets, her answer of “I do think that is quite a long way off in the future” got the reply that such an answer was not good enough.
There was a bit which was even worse and here it is.
Andrew Tyrie ” On balance do you think we would be better off unwinding it or letting it run off?”
Charlotte Hogg ” I don’t see the distinction between the two to be honest”
So apparently there is no difference between unwinding our holdings in Gilts and letting them mature. So in the extreme case of the longest held by the Bank of England which matures in 2068 pretty much anybody can see the difference in unwinding it today and letting it run to 2068. Andrew Tyrie then suggested that the advice of the Debt Management Office or DMO might be sought presumably hoping that they would have a better grasp of the subject.
This was of course a tacit admittal that the Bank of England has no intention at all of unwinding any of it QE bond holdings which sat rather oddly with this statement from Miss Hogg.
Also she does not appear to think that this from her written statement has anything to do with the prices and yields in the UK Gilt market.
Having been £85bn at the end of 2006, the total assets on the Bank’s balance sheet are now worth £519bn. The largest item is a £481bn loan to the Asset Purchase Facility – the vehicle through which gilt purchases, corporate bond purchases and TFS lending have been executed on behalf of the MPC.
If Charlotte actually believes what she says then I look forwards to her voting against any more QE which must be pointless as apparently Gilt prices and yields would be unaffected if it stopped.
This morning’s money supply data was another in a series which poses questions for Bank of England policy. The broad measure of the money supply rose by 7% and the lending measure by 5.6% so if we say the economy is growing at around 2% that leaves 5% unaccounted for which is likely to turn up in the inflation numbers sooner or later if UK economic history is any guide.
Also credit seems to be flowing if we look at the mortgage sector.
Lending secured on dwellings rose by £3.4 billion in January. Gross lending and repayments both increased and were above their recent averages . Approvals of loans secured on dwellings for house purchase increased for the fourth consecutive month and, at 69,928, were the highest since February 2016.
It seems that the boom in unsecured credit is continuing.
The net flow of consumer credit was £1.4 billion in January . The twelve-month growth rate ticked down to 10.3%.
We are regularly told that the monetary policy easing and bank subsidy efforts like the Term funding Scheme are to get credit flowing to smaller businesses, so how is that going?
Loans to small and medium-sized enterprises (SMEs) decreased by £0.2 billion.
Now there seems to be quite a contrast in the response of household borrowing especially of the unsecured kind and business lending does their not? The former has pushed higher since these policies began in the summer of 2013 and some of it has surged whereas the latter has mostly fallen. Or to put it another way only the latter will see the use of the word counterfactual.
The Bank of England has of course been claiming that it saved the UK economy with its August moves so we should be seeing a benefit in small business lending except the growth rate in the last 4 months has gone, -0.2%,0.1, -0.3%,-0.2%.
So far the UK economy has done pretty well after the EU leave vote which of course is awkward in itself for a Bank of England which predicted an immediate downturn. Of course it was even worse for the Forward Guidance of Governor Carney who predicted an interest-rate rise in such circumstances as recently as January 2016 and then cut them. However so far so good as the Manufacturing PMI business survey told us today.
The survey is signalling quarterly manufacturing output growth close to the 1.5% mark so far in the opening quarter which, if achieved, would be one of the best performances over the past seven years.
The rub in Shakesperian terms will come later in 2017 from this.
“On the price front, input costs and output charges are still rising at near survey record rates. However, the recent easing in both suggests that the impact of the weak sterling exchange rate on prices is starting to subside, providing welcome respite with regards to pipeline inflationary pressures.
But of course by easing the Bank of England made this worse and not better. The reason it did so is that it has a Governor who even those who support him are thinking he appoints people who are “Friends of Mark” which of course I have labelled for some time as “Carney’s Cronies”. The saddest part is that the welcome introduction of more women to the Bank of England has been affected by this as there are plenty of intelligent capable women around. The point of having nine members of the Monetary Policy Committee is to benefit from different views not have them ruled like the nine Nazgul in The Lord of the Rings.