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.