The Bank of England may consider yet more easing going forwards

Today the Bank of England announces its policy decision although care is needed because it actually voted yesterday. This was one of the “improvements” announced a while ago by Governor Mark Carney and it is something I have criticised. My views have only been strengthened by this development. From the Financial Times today.

Andrew Tyrie wrote to the Financial Conduct Authority on Wednesday to ask the regulator to scrutinise unusual patterns of trading behaviour ahead of market-moving data releases. “It would be appalling, were people found to be exploiting privileged pre-release access to ONS data for financial benefit,” said Andrew Tyrie, the chairman of the select committee, referring to the Office for National Statistics. “The FCA is responsible for market integrity. So I have written to them today to ask them to get to the bottom of this.”

Whilst this is not directly related to the Bank of England the UK ship of state looks increasingly to be a leaky vessel. As ever Yes Prime Minister was on the case 30 years ago.

James Hacker: I occasionally have confidential press briefings, but I have never leaked.
Bernard Woolley: Oh, that’s another of those irregular verbs, isn’t it? I give confidential press briefings; you leak; he’s been charged under Section 2a of the Official Secrets Act.

These are important matters where things should be above reproach. Speaking of that it is another clear error of judgement by Governor Carney to allow Charlotte Hogg to vote on UK monetary policy this week. The official releases about her resignation have skirted over the fact that she demonstrated a disturbing lack of knowledge about monetary policy when quizzed by the Treasury Select Committee leading to the thought that her actual qualification was to say ” I agree with Mark”.

Other central banks

The Swiss National Bank has joined the groupthink parade ( if you recall something Charlotte Hogg denied existed) this morning. Whilst busy threatening even more foreign exchange intervention and keeping its main interest-rate at 0.75% it confessed to this.

economic growth in the UK was once again surprisingly strong.

US Federal Reserve and GDP

There was something to shake the Ivory Towers to their foundations in the comments of US Federal Reserve Chair Janet Yellen yesterday evening. From the Wall Street Journal.

The Atlanta Fed’s GDPNow model today lowered its forecast for first-quarter GDP growth to a 0.9% pace. But Ms. Yellen shrugged off signs of weakness in the gauge of overall U.S. economic activity.


“GDP is a pretty noisy indicator,” she said, and officials haven’t changed their view of the outlook. The Fed expects continued improvement in the labor market and broader economy, though she also cautioned that policy isn’t set in stone.

Central banks have adjusted policy time and time again in response to GDP data and for quite some time Bank of England moves looked like they were predicated on it. Now it is apparently “noisy” which provides quite a critique of past policy. Also what must she think of durable goods and retail sales numbers?! Also this is like putting the one ring in the fires of Mordor to the Ivory Towers who support nominal GDP targeting. Oh and as we have observed more than a few times in the past the first quarter number for US GDP has been consistently weak for a while now leading to the issue of “seasonal adjustment squared”.

Things to make Mark Carney smile

Central bankers love high asset prices so let us take a look. From the BBC.

The UK’s FTSE 100 share index has broken through 7,400 points to hit a record intra-day high. The blue chip index is currently trading at 7,421 points.

The official data on house prices is a little behind but will raise a particular smile as of course it helps the mortgage books of the banks.

Average house prices in the UK have increased by 7.2% in the year to December 2016 (up from 6.1% in the year to November 2016), continuing the strong growth seen since the end of 2013.

Maybe even a buyer or two in central London.

Just faced a sealed bid stuation for a client buying a house in Knightsbridge. Life in the London property market is back. ( @joeccles )

Also with the ten-year Gilt yield at 1.22% then UK bonds are at an extremely high level in price terms albeit not as high as when Mark surged into the market last summer.

Maybe even the Bank of England’s investments in the corporate bonds of the Danish shipping company Maersk can be claimed to be having a beneficial effect.

Maersk Oil has managed to cut operating expenditure by about 40% in the last two years, and analysts at Wood Mackenzie predict the company will be the third biggest investor in the UK continental shelf (UKCS) by 2020. (h/t @chigrl )

Although Maersk put it down to a change in taxation policy and there is little benefit now for the UK from this bit.

He was speaking to Energy Voice at the yard in Singapore where the floating storage and offloading (FSO) unit for the £3.3billion North Sea Culzean project is being built.

In terms of good economic news there was this announcement today. From the BBC.

Toyota is to invest £240m in upgrading its UK factory that makes the Auris and Avensis models.

The Japanese carmaker’s investment in the Burnaston plant near Derby will allow production of vehicles using its new global manufacturing system.

Things to make the Bank of England frown

Ordinarily one might expect to be discussing the way that UK inflation will go above target this year and maybe even next week. But we know that the majority of the Monetary Policy Committee plan to “look through” this and thus will only pay lip service to it. However yesterday’s news will give them pause.

If we look into the single month detail it is worrying as you see December was 1.9% and January 1.7% giving a clear downwards trend. If we look further we see that those months saw much lower bonus payments than a year before and in fact falls as for example -3.9% and -2.7% was reported respectively. Putting it another way UK average earnings reached £509 in November but were £507 in both December and January.

They will now be worried about wages growth and should this continue much of the MPC will concentrate on this.


Today seems to be set to be an “I agree with Mark” fest unless Kristin Forbes feels like a bit of rebellion before she departs the Bank of England in the summer. However should there be any other signs of weakness in the UK economy then we will see some of the MPC shift towards more easing I think in spite of the inflation trajectory. That means that it will be out of sync with the US Federal Reserve and the People’s Bank of China ( which raised some interest-rates by either 0.1% or 0.2% this morning).

It may cheer this as an example of strength for the UK property market and indeed banks. From the Financial Times.

BNP Paribas is in talks to acquire Strutt & Parker, the UK estate agents, in what would be a Brexit-defying vote of confidence in the British property market by France’s biggest bank.

Can anybody recall what happened last time banks piled into UK estate-agents?


On Monday I suggested that we would see more Operation Twist style QE from the Bank of England today. Apologies but I misread the list and that will not be so. Off to the opticians for me.


31 thoughts on “The Bank of England may consider yet more easing going forwards

  1. Great article as always Shaun.

    With the fed raising IR’s we’re heading into fantasyland for the boe. The pound will be crucified and inflation will rocket. That is their remit isn’t it? Crippling the public with increases in the cost of living?

    • the BoE remit is as its always been ……

      Save The Banks

      ( and cushy jobs for those at the top )

      Governance of the People by the Banks for the Banks


    • Unlikely, there isn’t much upside for the dollar now no matter how high the Fed raises. I have believed for some time that the dollar is in a structural multi year appreciation cycle which will start coming to an end next year or 2019, currently it’s at or near it’s peak. I’m not saying this because the pound went up today as a day is just a day but I really don’t see the dollar strengthening significantly from here no matter what.

  2. “…the fact that …. demonstrated a disturbing lack of knowledge about monetary policy …”

    for a moment I though you meant Mark……

    ( or maybe the entire staff at the BoE , certainly seems that way )


    • Hi Forbin

      I can see the problem! However Mark Carney usually manages to be reasonably coherent although of course he is rarely picked up on any detail. The press are well trained at these events usually……

  3. ‘However should there be any other signs of weakness in the UK economy then we will see some of the MPC shift towards more easing I think in spite of the inflation trajectory. That means that it will be out of sync with the US Federal Reserve and the People’s Bank of China ( which raised some interest-rates by either 0.1% or 0.2% this morning).’

    This desynchronisation is why we could be in for a nasty shock. At some point I can see the pound taking a real shellacking that even the BoE won’t be able to ‘look through’.

    Interesting what you say about high end London property recovering. I was talking to an informed friend last week who says estate agents give you two different valuations these days: one for getting finance and one for actually selling. I’m sure you can guess which one is higher.

    • Hi Casey

      I was intrigued by the London property tweet but think it needs taking with a pinch of salt for now. There are a lot of vested interests who want to tell us it is getting better all the time to quote Lennon/ McCartney.

      As to the Bank of England there was this in today’s Minutes.

      “A more marked slowdown in activity than currently anticipated by the Committee, by contrast, could warrant additional policy support relative to that implied path.”

      As to the £ I think that the falls over the past year have priced a lot of this in already.

  4. I agree with you that the squeeze on real incomes is going to hit consumption and growth later this year and this may lead the BOE to look at (yet more) easing.

    They can’t really reduce rates any more (0.15% to 0.10%! – a real blockbuster!) and I think any hint of a move to NIRP is going to bring the critics out in force. Negative rates at the retail level would be a real game changer in my view.

    I wonder whether they wouldn’t try and beef up TFS, reducing the rate, even negative if that was possible. But this will appear to be what it actually is: a direct subsidy to the debt fuelled economy in general and the property market in particular and I think this is getting to be ever more blatant and unacceptable.

    If this easing does come to pass then it does show what a desperate state we’re in; in prison with no key and, what is worse in some ways, no ideas.

    • More the housing market goes up the less us priced out plebs who are saving will spend … and the ones who do buy into this enormous bubble are priced out of consumerism until some time around 2045. Though folk using their Bungalow as an ATM may stock up on M&S goodies and cruises to keep the economy ticking over.

      But yes that piece of (insert word here) Carney who i have nothing but contempt for will no doubt do as you say … and then he’ll tell us prices are going up due to a housing shortage and not because of his corrupt monetary policy that Ms May spoke of but has done literally nothing about in 9 months.

      They really are going all the way this time as no political party has the intelligence or balls to stop the bankers shills at Threadneedle Street who are running the country..

  5. Great blog as always, Shaun.
    Regarding Chair Yellen’s press conference, I watched it online afterwards and was struck by the same response about the GDP estimates. The US BEA is at their second estimate of 2016Q4 real GDP; by coincidence, it is unchanged from the first estimate at 1.9% but they do move around a lot. This was a little under the median backcast of FRB members (2.1%), but was actually higher than the 1.8% growth rate that FRB members see for real GDP in the long run. It seems the US Fed doesn’t buy into the Trump regime’s promises of plus four percent growth looking forward.
    The median forecast of the US Fed members for annual real GDP growth in 2017Q4 was 2.1%, unchanged from December. So they, like Chair Yellen, are obviously unfazed by the Atlanta Fed’s nowcast that 2017Q1 growth will be only 0.9%. There are several points that can be made about this projection. First, there is some evidence that short term forecasts of US real GDP in general are downward biased, by about 25 basis points:
    This would imply that an unbiased real GDP forecast would be 1.1% to 1.2% for 2017Q1, other things being equal. Second, the Atlanta Fed’s nowcasts, unlike others, are entirely model-based, and make no reliance on judgement. This would seem to put a big question mark on its forecast for the first quarter of the Trump regime, since its promised fiscal stimulus seems likely to raise growth rates, but there is probably little indication of this in the equations and data used in the model.
    Third, even if the Atlanta Fed’s projection were accurate it is quite possible that annual real GDP growth for 2017Q4 could be 2.1%; it would only require an average annualized growth rate of 2.5% in the remaining three quarters of the year.
    It seems that a lot of the data relating to the sharing economy is only included with the third estimate of real GDP, so if, as seems likely, the sharing economy becomes a larger share of the US economy, the second estimates, like the estimate of 1.9% annual growth for 2016Q4, will become less reliable.

    • Hi Andrew

      Thanks in particular for the link to the analysis of GDP forecasts. We have discussed on here before the over optimism of official forecasts with Greece being the worst example for obvious reasons but I was not aware of the short-term pessimism bias. How curious!

      Maybe a factor in US GDP estimates seeming noisy is the way that they are annualised….

  6. Hi Shaun
    I note that Ms Forbes , to leave in June, took the opportunity to vote for a rate increase; naughty girl! The news seems to have given GBP a slight kicker today.
    As I remarked yesterday, even with 0.9% Q1 posted ( albeit with the usual adjustment caveats) talk is of acceleration of pace of rate increases by the Fed.
    Of topic. We have talked about the rotterdam effect in UK export/import numbers and probable ‘inflation’ of the EU component thereof as a consequence. I assume after Brexit trade through Rotterdam to the RoW will go through a designated ‘transit’ arrangement without incurring EU ‘duties’. If so it will be interesting to see the effect on the numbers. I suspect the already declining EU trade component will take a step down on reported numbers.

  7. There seems to be Establishment group-think where inflation is seen as a cost free method of soft default on the national debt. They are in denial, food and fuel inflation will crucify the public.

    They claim growth and success. If this is the case, they shouldn’t need to borrow. The deficit is 2% of GDP, cutting this will make a modest effect on median living standards. The downside is small.

    Now compare the inflationary episode costs on median living standards. A 25% drop in GDP means a 33% increase in imported food prices. Similar for fuel prices which usually trade in USD. And because the UK has a trade deficit, I’d expect borrowing costs to rise as foreign lenders abandon an inflationary depreciating currency. This could easily be 10 times worse than modest cuts to balance the budget. The downside is big.

    And it could get worse still, look at the Venezualan failing food supply chain …

    • I am guessing you mis-typed ‘D’ instead of ‘B’.
      UK has an ongoing problem of being so dependent on imported food. The risks are that an increasing population will be exposed to falling standards to compensate for increasing prices. Fish from the mekong anyone?
      Its true that USD priced oil increases risk, but the UK has its own ‘built in’ inflation without this. The Beeb today is telling whoppers of ‘fake’ news about the costs of electricity. Its really going down don’t you know. In fact UK residential customers are paying 33% more than they need to this year due to ‘climate change’ levies, and this is going to increase to at least 50% unless the CCA is repealed.

      • In regards to UK energy policy, it’s a failing top down disaster. The feed-in tariffs are a long term liability, especially given that solar panel cost is dropping fast. I’d want the UK govt to report how much carbon they’ve saved, Germany’s brown coal standby means they’ve done very little CO2 reduction from enormous subsidy.

        South Australia is having big power cuts, due in part from a 50% renewable supply. Tesla and others offering to ‘save the day’ with batteries. Questions are who pays for batteries and whether the politicians are willing to implement an electric billing system based on real time energy availability and cost.

        • about 16% of carbon emissions of electrical supply by 2020 projected – all backed up by CCGT

          coal to be phased out by 2025 apparently

          we have approx 13.5GW capacity of windmills , of which I’ve not seen reported more than 8-9GW during any day in the past year. Often when its least needed and at the lowest 0.8GW , again sometime when we needed 50GW .

          the shortfall is made up by coal ( not too much ) but mostly natgas . We do import electricity from France , Netherlands and Ireland via the inter-connectors. Yes we do export too via them but over the year we import more than we sell

          yes that does mean over the year we do not meet our electricity demand by home generation !

          once we’ve closed all the coal stations the next big idea is to replace CFL with LED light bulbs………

          oh and stick us all on “smart” meters so they can cut us off when ever they like
          ( or charge us £20,000 😉 )


        • replying here to ExpatBG

          Does that 16% include emissions of carbon based standby generation capacity ?

          Its the overall figure so I say yes

          open cycle gas generation is not used much , about 200MV capacity at peak times – occasional use only as its expensive to use but fast run up

          Oil fired generators , again the figure is small but I’ll need to look it up – again hardly used

          the reason being is that we have about 33/34 GW of nat gas with 8GW nuclear

          load is between 24 GW ( night ) to 50GW (day peak) dependent on how cold it is.

          take into account the 2/3GW of converted coal to wood pellets ( not “green” – quite co2 intensive really ) , plus the still functioning true coal of approx 8GW
          (its priced out of use by carbon tax btw , ie we tax it to make it expensive)

          coal & nuclear are of course base load

          hydro and pumped are intermittent and used mostly peak times

          Overall its the intermittency of wind thats the engineering problem befuddled by politicians who interfere too much ( and know too little )

          I hope I have answered you questions – the UK government does publish quite detailed reports on our energy , even if its sometimes screwed up by the Parties political agendas.

          so actually we run on wind and gas – quite appropriate considering Parliamentary interference !


  8. Mark Carney and the rest of his yes men and women on the rate setting committee are skating on very thin ice regarding sterling. He, as Shaun has pointed out on numerous occasions, been determined to ignore any data that would suggest a rate increase is required. He is even on record as being “data dependant” and yet quixotically, at the same time quoted as saying he is prepared to “look through higher inflation to protect jobs”, how the forex market cannot see there is absolutely no scenario or sequence of events that would induce him to raise rates is quite beyond me. He was brought over here by Cameron to reflate the housing bubble and he is going to defend it at all costs. If that means a total collapse of sterling(extremely likely) then he will consider it a price worth paying and justify it by saying exporters will benefit,( inflating away the government’s by then £2 trillion debt another bonus). Carney and the Bank of England are total hostages to the UK housing market, they are trapped and will never raise rates, if they do it will be too little too late and in the face of a total collapse of sterling.

    Perhaps someone should consider removing him, oh wait, Theresa May tried that at the end of 2016 and he called her bluff, she’s not likely to try that again, with the negative sentiment surrounding BREXIT, Sturgeons call for another referendum and the Bank of England out on a rate cutting/QE limb at the same time as the Fed and later this year/early next year the ECB tapering or considering higher rates sterling will be crashing through parity with the $,who in their right mind would hold sterling in those circumstances??

    Cable 50-60 cents anyone????

    • That’s exactly what Cameron/Osbrown brought him over for and my god has he pulled some rabbits out the bag to make sure ordinary people can’t afford to buy houses. His most recent scam namely Term Funding Scheme is nothing short of blatant theft from savers to give more cheap debt to mortgage holders (like it wasn’t cheap enough already). Then he has the audacity to claim he’s being vigilant regards there being a bubble. Its a disgrace that he is still in a job, and its well past time central bankers were reigned in.

      He is the Ali Dia of central bankers a complete and utter charlatan, but at least when Graeme Souness saw how incompetent Mr Dia was he had the intelligence to accept his mistake and got rid.

      • I should say he has been quite competent although I disagree with his actions and policies the UK has for once performed much better than most other advanced economies over the last few years. Neither you or I can get past that fact, however he has done this via a bubble housing market and I do think there were better ways to achieve the UK’s relative prosperity without mortgaging the citizens futures. .

        • That’s the whole point he’s created debt fuelled growth with residential property being his vehicle for this …. and at some point this will lead to a bust. Is that really performing better?

          UK PLC would have been better off with no GDP growth, no more debt, affordable housing and no need for the BoE to be petrified about raising interest rates knowing full well when it happens it will crash the economy. (aka the housing market)

          One of those nodding birds on a stick hitting the “computer says yes to a loan button” could have conjured up such growth.

          PS If housing was affordable to people using their wages that £27 billion Housing Benefit bill could be slashed to single digit billions. (Germans pay 1/10th) It would enable a Blairite such as Hammond to cut NI/taxes, even though thats against what folk like him and most the unTory party stand for … or better still help clear the deficit.

      • All other advanced economies have been borrowing like mad and are fiscally worse off with the exception of a few (Germany, Sweden, Switzerland and Sweden spring to mind) whilst their growth has been below that of the UK so Yes it is performing better relatively speaking. Most Germans rent so a comparison is not straight forward.

        You should stop hankering after a return to the past where we owed much less because if you look at hose times we still paid as much out in debt interest as the rates were higher. We both have to accept that this is the new “normal” – low interest rates, lowish inflation and low growth, we live in an advanced economy so it’s not that bad but would be awful in a third world (emerging market) country where we should still expect strides forward in living standards to match the advanced economies..

        • We’ve one of the highest budget deficits in the developed word, and in the last year Britain has gone on a private sector debt binge growing 12% i believe. We’re the maddest borrowers.

          Most Germans do not rent and much of Germany was communist until not too long ago so 100% of those properties were owned by the state.

          Your comment about debt interest payments … are you really using this as a worthy comparison? Or does paying off the capital not matter anymore. And interest rates only spiked for a short time, we’ve had the equivalent of 15% interest rates for 8 years.

          Its far more than low interest rates keeping the market rigged and i don’t believe any other nation has gone to the extent of the UK with its scams to boost house prices namely HTB, QE, Funding for Lending, Term Funding Scheme, £27 billion Housing Benefit, strict planning laws, powerful NIMBY’s, most council housing sold off so rents are much higher in comparison to wages etc..

          You speak like a boomer bought when prices were cheap and is doing ok out of the bubble, ZIRP and QE, who is clueless about what its like renting in the UK. So no i won’t stop hankering to wanting a society where people can afford to buy houses to raise their family in with their wages.

          All i want is something close to a free market, but it would seem the powers that be don’t have the intellect to make money in something vaguely resembling a free market.

      • Whatever are you talking about. What have rabbits and bags got to do with a term funding scheme and what is that anyway.

        Whose Ali Dia and Graeme Souness.

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