At the moment the minds of the Bank of England must be getting more befuddled than usual as jet lag adds to the usual problems. Once they get back from Australia ( Haldane and Broadbent) and Canada ( Governor Carney) no doubt they will set aside time to read Governor Carney’s latest speech on climate change. That is assuming the forward guidance of their various pilots is working much better than theirs as otherwise a few more flights will be required to get home. So let us open with some relatively rare good news for them. From the BBC.
Reaction Engines Limited (REL), the UK company developing a revolutionary aerospace engine, has announced investments from both Boeing and Rolls-Royce.
REL, based at Culham in Oxfordshire, is working on a propulsion system that is part jet engine, part rocket engine.
At the moment the sums are small but it is a reminder that space technology has been a success story for the UK economy over the past couple of years. It has been getting more and more mentions in the official statistics.
Deputy Governor Broadbent has given a speech at the Reserve Bank of Australia this morning. Tucked away in it is something of a gem even for our absent-minded professor.
I discovered when writing the talk that my former colleague Paul Tucker made very similar arguments regarding accountability back in 2011.
The last thing any sensible person would do is equate former Bank of England Deputy Governor Paul Tucker with accountability. Many of you will remember the saga but for those that do not here is the Guardian from back then.
Paul Tucker, the former deputy governor of the Bank of England, is among several figures from the world of finance to receive a knighthood in the New Year honours list, despite claims that he was involved in the Libor interest-rate fixing scandal.
What has concerned our bureaucrat is what concerns bureaucrats the most everywhere which is a challenged to the bureaucratic empire.
Some have argued that, because there are significant interactions between the two, monetary and macroprudential policy should be housed not just in the same institution, but in the same policymaking committee
within the central bank. The distinct MPC and FPC should become a single “FMPC”.
Okay why not ?
The risk is that a single committee would pay
too much attention to its more verifiable objectives – the cyclical stabilisation of inflation and growth, currently
allocated in the main to the monetary policymaker – and too little to financial stability.
Yet he seems to forget this later as he remembers his boss is on both committees so we get this.
Even if the two hands are separate, it is important that the one should know what the other
is doing, and in that respect it helps that some people sit on both committees.
Indeed they do some things together.
issues are relevant for both and, in the Bank of England, the MPC and FPC regularly receive joint briefings
on such matters.
Poor old Ben then trips over his own feet with this as an increasing number think that what he fears is the current state of play.
I think there would be risks in asking the central bank to meet a wide range of objectives with no distinctive accounting for the use of its various tools.
The housing market
Those at the Bank of England who have trumpeted wealth effects from higher house prices will be troubled by this from Estate Agents Today.
Prices are flat nationally but there are major regional variations with London seeing the sharpest fall in prices, according to the surveyors.
Respondents in the South East of England, East Anglia and the North East of England also reported prices to be falling, but to a lesser extent than in London.
Prices increased elsewhere in the UK in the last three months.
Will they now be so keen to try to push mortgage interest-rates higher and thus drive away the claimed wealth effects? Whereas at the moment the situation according to the credit conditions survey of the Bank of England reminds us that its previous policies are still having an effect.
A narrowing of spreads reflects an increase in the level of
competition in the mortgage market. In recent discussions, the major UK lenders noted that competition remains very strong.
Can anybody please tell me where the £127 billion of funding given to the banks by the Term Funding Scheme may have gone? It does not seem to have gone here.
The perceived availability of credit to small businesses decreased slightly in 2018 Q1, according to respondents to the Federation of Small Businesses’ (FSB) Voice of Small Business Index.
Also if we return to the argument provided by Ben Broadbent that a separate FPC is vital I wonder what he and they think of where the biggest impact of their TFS has been.
competition remains very strong
and since November has increased in the higher LTV market,………..Consistent with this, the difference
between quoted rates on two-year fixed rate 90% and 75%
LTV mortgages has narrowed from 90 basis points in August to 69 basis points in March. ( LTV = Loan To Value).
As I understand it this is officially called vigilance these days.
Another example of “vigilance” can be provided here from today’s survey. You may recall that the Bank of England has taken something of a journey on this subject after Governor Carney told us this in February 2017.
This is not a debt-fuelled consumer expansion
that we’re dealing with.
Now the survey tells us this.
There has been a modest tightening in the availability of
consumer credit over the past year.
This is a reining back from the promises of a reduction that we saw in the survey for the third and fourth quarters of last year which they are no doubt hoping we have forgotten. Of course we see a sign of the Term Funding Scheme at play yet again.
Lending spreads have tightened in recent months as interest rates remained broadly unchanged following the rise in Bank Rate.
This provides two problems for the Bank of England. Firstly it has boosted consumer credit with its “Sledgehammer” policies and now we will have to face the consequences. Next is a confirmation of the earliest theme of this blog which is that Bank Rate has very little and sometimes nothing to do with the interest-rates charged in this area. In effect therefore it is somewhat impotent.
Yet again our absent-minded professor has been somewhat forgetful. For example his own move from being an “external” member to an internal one at the Bank of England was clearly beneficial for him but was bad for the idea of external members bringing fresh ideas and dare I say it independence to the Bank. Now that Rubicon has been crossed they too may now be hoping for promotion and monetary gain and hence influenced in the same way their appointment was an attempt to avoid.
Also the empire building of the current Governor who has overseen inflation in the number of Deputy Governors such as Ben is clearly something that cannot be challenged within the Bank. For example I am no great fan of macro prudential policy as when it was used in the past it failed and I notice the fanfare in favour has gone much quieter as reality has replaced hype.
Moving to the interest-rate issue that presently seems to be the topic du jour every day the Bank of England is facing something of a crisis as its forward guidance has put it between a rock and a hard place. The rock is the increases seen and expected in US interest-rates and the hard place is the trajectory of the UK economy.
The honesty is admirable but it is hard not to smile as you read why Nigeria released its inflation data an hour early today. The Hat Tip is to @LiveSquawk
It will be shortly. I published one hour earlier by accident. Forgot Watch still on London time so I released 8am instead of 9am as published . Probably need a break/holiday. My apologies