Is the Bank of England on a road to another Bank Rate cut?

Yesterday was a rather extraordinary day at the Bank of England and in some respects lived up to the Super Thursday moniker although by no means in the way intended. The media dropped that phrase at exactly the wrong moment. The irony was that for once they may have done the right thing in not raising interest-rates but what this exposed was the ineptitude and failures of their past rhetoric promises and hints. The regime of Forward Guidance can not have been much more of a failure as it found itself being adjusted yet again.

the MPC judges that an ongoing, modest tightening of monetary policy over the forecast period will be
appropriate to return inflation sustainably to its target at a conventional horizon.

Let us mark the obvious problem with the use of ongoing when the Bank Rate is still at the emergency level of 0.5% the Term Funding Scheme is at circa £127 billion and we have £435 billion of QE Gilt holdings and look at what they said in February and the emphasis is mine.

The Committee judges that, were the economy to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report,

So the timing element was wrong and so was the amount which doesn’t really leave much does it?

But things got worse at the press conference because in his attempt to explain this Governor Carney exposed Forward Guidance as an emperor with no clothes. In an exchange with Harry Daniels of LiveSquawk Governor Carney told us that his words were really only for financial markets and implied that they were big enough boys and girls to make their own views. He then contrasted with the ordinary person clearly implying they would not. Seeing as Forward Guidance was supposed to connect with the ordinary person and business Governor Carney torpedoed his own ship there. Also when he later tried to claim people and businesses do listen to him he unwittingly admitted he had misled them,

The people we speak to first and foremost are households and businesses across the country. [They] don’t trade short-sterling. They are not fixated on whether we raise rates on May 10 or at the end of June ( The Times).

They might reasonably have been fixated on his rate rise rhetoric back in June 2014 after all if they could have nearly taken out a couple of 2-year fixed-rate mortgages since then to protect themselves against the interest-rate rises which never happened.

A bizarre element was added on the issue of him talking at 6 pm to the BBC when many UK markets are closed as the Governor tried to claim it was okay because some markets such as the UK Pound £ were traded 24/7. This of course did not address at all the ones that are closed or the lack of liquidity at such times in the ones that are.

Weather or whether?

This got the blame.

The MPC’s central assessment is that it largely reflects the former, and that the underlying pace of growth remains more resilient than the headline data suggest.

The problem here is of course if they really believed that then they should have raised interest-rates! Also it directly contrasted with what our official statisticians had told us a few hours before.

Today’s figures support previous estimates showing the economy was very sluggish in the first quarter of 2018, with little impact overall from the bad weather.

Unreliable Boyfriend

This subject was raised several times and one of them got a rather bizarre response.

Shade from MC: “The only people who throw that term [unreliable boyfriend] at me are in this room” ( @birdyworld )

We do not even need to look beyond the boundaries of this website to know that such a statement is untrue and even the BBC uses the term. The Governor had opened the press conference by shiftily looking around the room before as several people rather amusingly suggested to me talking out of both sides of his mouth. Indeed the man formerly praised for his good looks and for being a rock star central banker seems to have lost the female vote too if this from Blonde Money is any guide.

Carney the ever unreliable boyfriend

There was an alternative view which I doubt the Governor will prefer.

The people outside the room say “who are you” ( @birdyworld )

Especially as it is from someone who thinks he has done a good job.


There was another odd turn here as Governor Carney went into full Ivory Tower mode and said that the Monetary Policy Committee only looked at regular wages. As it is not that frequent an event let me echo the words of Danny Blanchflower on this subject.

idiotic – workers only care about what is in their pay packet – so you take out the part of pay that varies and then tell us what is left doesn’t vary No other country in the world uses such a dumb measure.

Even worse the Governor tried to say that wages had progressed in line with the forecasts of the Bank of England but this is only if you cherry pick the data. For example the latest month for which we have figures is February and if you take the Governor’s line and look at private-sector regular pay the annual rate of increase was 3%. However if you look at pay across the economy ( and as it happens the private-sector)the annual rate of increase was 2.3%. Will people ignore what was once called “the pound in your pocket” and instead break up the notes and coins into separate piles?

The absent-minded professor

Ben Broadbent is called into play at the press conferences if the going gets tough. His role is twofold being partly to expound widely on minor details to waste time and in a related effort to make the viewers and attendees drowsy if not numb. Sadly I was not that to point out that his rhetoric on Asia ignored Japan where many fear a contraction in the first quarter GDP data due you guessed it to the weather.

He has also been on the Today programme this morning on BBC Radio Four. This seems unwise as people have just got up and do not want to be sent back to sleep but if we move on from that there is this.

BoE’s Broadbent: Message Is That Rate Hikes Will Be Gradual ( @LiveSquawk )

How long can you keep saying that when in net terms there have not been any?

It is entirely the sensible thing to do, to wait to see whether we are right that the economy will bounce back from here, and for me the decision was straightforward

So it was the weather or it wasn’t? Moving on from that is the contrast with August 2016 when Ben appeared somewhat panic-stricken and could not cut rates fast enough where was the waiting for a ” bounce back from here,” then Ben? He also wanted to cut further in November 2016 before of course even he was calmed by the actual data.

On a deeper level I would just like to point out that it was wrong to move Professor Broadbent from being an external member to an internal one. Otherwise external member of the MPC may be influenced by potential sinecures from the Governor which makes their existence pointless.


The road to a Bank Rate cut and possibly more QE Gilt purchases is simple and it merely involves the current weak patch for the economy persisting. As I have pointed out before the monetary growth numbers have been weakening which suggests the summer and early autumn may not be that good. It is also true that more than a few of our trading partners are seeing a weaker phase too as for example we saw this from France on Wednesday.

Manufacturing output fell sharply over the first
quarter of 2018 (−1.8%)

That leaves it with a similar position to the UK where a better phase seems to have ended at least for now. We know from August 2016 that it will not take much more of this for the Bank of England to look at easing policy in sharp contrast to the nearly four years of unfulfilled Forward Guidance about rises.

I don’t care if you never come home,
I don’t mind if you just keep on
Rowing away on a distant sea,
‘Cause I don’t love you and you don’t love me. ( Eric Clapton)

Meanwhile the consequences continue to build up.

Forty-somethings are now almost twice as likely to be renting from a private landlord than they were 10 years ago.

Rising UK house prices have left many middle-age workers unable to afford a first home,  ( BBC )





25 thoughts on “Is the Bank of England on a road to another Bank Rate cut?

  1. How many of those private landlords are also 40-somethings, taking advantage of the fact that they have built up equity in their own homes and can get tax relief on “investing” in rental property?

    • Not too many, as its predominantly boomers who are neck deep in BTL. as Its predominantly boomers who have all the equity in their house.

      • Bollocks. They are too old to get mortgages, and wouldn’t benefit from the tax relief to the same extent.
        When I was saving for a deposit for my home, I didn’t go out (pub or restaurant) ONCE. No holidays, no designer clothes, loads of overtime.
        Imagine the horror of millennials at being asked to take a flask to work, instead of their lattes; of home-made sandwiches, rather than lunches out.
        Cutting the cruises:
        Four of my in-laws’ nephews were each given £18k by their parents for a deposit, three have spent it on other things, mostly travel.

        • OK then it is millennials and those a decade older who are responsible for BTL, obviously back in 1997 in the school playground BTL replaced British bulldog and daisy chain making with the then 12 years olds nipping down the bank to leverage against their house price inflation to get a couple of nice BTL’s to rent out to their parents and grandparents.

          I’d love to know why pubs and nightclubs are closing in record numbers if the kids are all out having a good time.

          I believe my parents also gave up going out to pubs to save for a deposit to get their first house in 1970, apparently it was a bit of a dull 6 months, though the bank manager gave them a loan for the shortfall.

          As for them spending money on other things, well it hardly means your generation havent financially raped the country meaning if Carney raises rates you lose and we win, hence why he wont.

          • BtL wasn’t the huge problem it has become until the financial crash, when returns on other investment types were decimated. That’s approximately 2008, when boomers were 55-upwards: too old for decent mortgages.
            It’s nice to have a scapegoat for your troubles, but these facts remain:

            1) Other policies were just not on offer as elections became mere beauty contests.

            2) Boomers have ALWAYS been hugely outnumbered by the rest of the electorate, so the idea that we, on our own, could decide the hue of the govt. is ludicrous.

            3) Whilst house prices were lower, interest rates were, at times, a killer, with over 100,000 house repossessions per year. No forbearance there, unlike now.

            4) The Pension Freedoms Act was not introduced until 2015, too late to blame it on that, and itself a symptom of the destruction of other investment/annuity returns.

            5) The idea that (especially working-class) people had it easy, 30 years ago, when buying their homes is arrant nonsense; large numbers of us were unemployed, or on £2 an hour.

            6) Neither I, nor the vast majority of my generation have raped (less of the drama queen please) anyone, from any generation, financially or otherwise. There are sharks in the water, but they are from all generations.

            7) Elderly people are less likely to flippantly remortgage their home, as they see it as the best form of financial security, and can remember those punitive interest rates.

            8) We had 40-odd thousand extra deaths from the cold this year, due to (in most cases) elderly people, including boomers, being unable to afford to heat their homes. Many elderly people who, on paper, are wealthy because of the paper value of their homes, are living in abject poverty.

            9) I have posted on here, a number of times, that, in my view, the best solution to the housing problem is a price drop of ~ 30%, and further, have posted that my view of housing is as a commodity, rather than an asset, but the reason it won’t happen is because of the reduction in the value of collateral held by the banks, against loans.

            Once again, the idea that baby-boomers have conspired against younger generations is arrant nonsense, and further, that we played an unusually large part of the decision-making process which has disadvantaged younger generations, is propagandist nonsense.

            By all means campaign to allow house prices to fall to a reasonable level and you’ll have my support, unless, of course, you alienate us all with your rabid invective.

          • OK first of all you claim they are too old. So long as you have the deposit for a BTL the banks will lend pretty much irrespective of age. So you are 100% wrong on this point.

            Your point 2 about boomers not being the largest voting block is laughable, boomers means there was a boom of babies being born, hence more humans aka voters in the boomer generation.

            Response to point 3. Yes you had high interest rates, but you also had high wage inflation, never seen a boomer point this fact out, meaning initial mortgage would have been easy to deal with in a handfulof years so long as you didnt take on more debt.

            Response to point 5- So are you saying workers on £2 an hour (equivalent minimum wage) could buy somewhere to live. But the poor got council houses, then could buy them at giveaway prices.

            Point 8 Elderley people are less likely to remortgage than who? People under 35 aka millenials? As again this is nonsense as most millennials are priced out so they don’t have a mortgage.

            Point 8, Maybe they should use their £200/300 winter fuel allowance, doesn’t cost that much to heat a couple of rooms. Or they can downsize and heat the house with unearned housing equity to warm up. Besides most of Britain isn’t that cold.

            Point 9, the reason 30%+ falls will happen is because the banks have created a ponzi business model where they mainly lend to people to buy overpriced houses as opposed to productive business to buy such shelter with their wages.

          • Arthur Cox, YOUR LINK
            “When it comes to being accepted for a buy to let mortgage age can often be a real sticking point. Most buy to let lenders will ask that you are no older than 70 when the mortgage starts and no older than 75 when it ends.

            So what if you’re over 70, have a solid portfolio of rental properties and don’t want to sell up? Or you are in your 60s and want a mortgage with the term to extend past your 75th birthday? It doesn’t seem fair does it? Fortunately there are a few options.
            Buy to let lending to individuals
            No upper age limit. Currently there is only ONE lender with no upper age limit but the catch is that you MUST BE UNDER 70 when you apply for the buy to let mortgage. This lender offers terms up to 35 years, so technically speaking you could have the mortgage up to the age of 104!

    • Rawbuzzin you docile individual it is boomers who are predominantly the BTLers get this in your simple mind.

  2. I think the case for a rate cut is even stronger than you say. Quite apart from the cyclical – we are overdue a recession – there is a constant build up of debt, both public and private. This means that more and more income is being pre-empted by debt interest repayments over time and to keep “peak debt” at bay the interest rate needs to be lower and lower. Combine a build up of debt with largely stagnant incomes and you must reach a point where interest will reduce consumption and then things will go into reverse.

    This is the reality that MC has to deal with; forward guidance is just a smokescreen.

    • Hi Bob J

      I think the smoke thinned out a while ago don’t you? Personally I am not in favour of more interest-rate cuts because that keeps us in a trap where interest-rates just keep moving lower. Whilst we have seen negative interest-rates and the financial world has not blown up that does not mean in my opinion that you can keep going further.In the end the music will be from the Steve Miller Band.

      “Bobbie Sue took the money and run

      Go on take the money and run
      Go on take the money and run
      Go on take the money and run
      Go on take the money and run”

    • I agree with your logic if you want what we have got and the trend we experience today to continue. The only way to feed the addict is with more drugs. Others however can foresee an inflection point or a paradigm shift where more drugs create an overdose.

      So do we act to break the cycle, cold turkey will be awful I agree. Carney can see a pleasant retirement for himself and that is all he seems to care about.

  3. Hi Shaun
    Under the guidance of the government Carney and co have
    lost all credibility.
    It seems clear that the only financial path they are prepared
    to take is the Japanese model, so much more QE to come under
    whatever guise coupled with evermore bizarre economic theories and
    massaged statistics.Thank goodness that we have a stable government!

    In any moment of decision, the best thing you can do is the right thing, the
    next best thing is the wrong thing, and the worst thing you can do is nothing.
    Theodore Roosevelt.


    • Hi JRH

      That reminds me of a quote by Winston Churchill.

      You can always count on Americans to do the right thing – after they’ve tried everything else.

      We have yet to see if Mark Carney can aspire to such an achievement.

  4. It is a simple fact that the market – in this case Short Sterling – is wiser than the 8 career Economists and our unreliable friend who leads them. Every time he who things he knows best, has moved the market to his guided level of interest rates the market has subsequently been proved right and interest rates have moved back towards the prevailing levels prior to his comments. Instead of finding it amusing that Short Sterling traders are fed up with his unhelpful and often costly misinformation, perhaps he should try listening to them as their forward guidance is a lot more reliable.

    • Mike, that’s a very good point. If markets stop believing the forward guidance then, when Carney actually raises rates, there will be carnage (apologies) as markets over react. Yet again, he’s painting himself into a corner.

  5. Great blog as usual, Shaun
    Re wages, I left a comment on that on your blog yesterday. I find it remarkable that more than a year after the ONS switched to deflating nominal wages the CPIH with that Carney simply accepted Larry Elliott’s obvious if unstated premise that nominal wages should be deflated with the CPI. Deflating with the CPIH, total pay as well as regular pay would show an increase in 2018Q1, or at least, as you pointed out, the part of 2018Q1 for which we have data.
    The CPI inflation rate fell from 3.0% in December to 2.5% in March, but it is really a dysfunctional measure for the Bank of England to be targeting, since it excludes house prices. The inflation rate for the RPI excluding mortgage interest payments and council tax adjusted for the formula effect went from 3.5% in December to 2.6% in March. Although it is still, barely, showing a higher inflation rate than the CPI, the drop in its inflation rate has been 0.9 percentage points, almost twice what it was for the CPI. This is in large part due to housing prices. Carney would have an easier time arguing that yesterday was not the time for a rate hike if he were referencing this RPI-related series instead of the CPI, but of course he would never do that.
    If there is a very sharp rise in the oil price in the coming weeks or month this would entail a big terms of trade loss for the UK economy. It would be helpful if the Demand and Output chapter of the Inflation Report showed real Gross Domestic Income (GDI) estimates for the UK as well as real GDP estimates. The real GDI label is unfortunate, but the series itself is very useful. It is a real income series that adjusts real GDP for gains or losses from changes in the terms of trade. In Canada real GDI dropped in 2008Q3, anticipating the three-quarter decline in real GDP that started a quarter later. This was not a fluke, as for the most part real GDI is a leading indicator for real GDP. Unfortunately, the ONS does not currently publish real GDI estimates, but the Bank of England could probably derive its own if it wanted to. In fact, it was separate and virtually identical real GDI series calculated and published by the Bank of Canada and the Parliamentary Budget Officer (the Canadian OBR) that shamed StatCan into publishing its own real GDI estimates. Deriving real GDI from real GDP is not rocket science.

    • Hi Andrew and thank you

      It was only a couple of months or so ago that Governor Carney was attacking the RPI so using it is too much even for him. As to variants of CPI the Bank of England has not expressed much of an opinion so perhaps it will cherry pick the one that suits at the time. As you know I am unhappy with using CPIH as a deflator when so much of it is imputed rent.

      As to GDI I completely agree with you. I recall a stage when one of the US Federal Reserve’s made a similar argument for the US that you have made for Canada that the Income measure responds more quickly than the production one. However in the UK publication of the Income number was shut down by the then Chancellor Nigel Lawson as he did not like people seeing the differences between the measures and the ONS now “balances” them. I found this out because I wanted to see if the US experience happened here which seemed likely and so I asked for the numbers. Thus you are right that the Bank of England could get them if they really wanted them.

  6. If we are honest rates need to go up significantly who in their right mind saves money with a return below RPI that is not saving that is erosion of purchasing power.
    However the debt is at such a level they cannot do what is required so they are creating the conditions for further debt.
    This cannot continue indefinitely ,pension schemes have been destroyed over the last 20 years ,the population turned into debt slaves and real incomes are falling,so how can there ever be a recovery?
    Carney and the others are pointless they are criticised,deservedly as they are being well rewarded for talking BS about a situation that is hopeless and whatever they do is wrong.
    Only by holding a new Bretton Woods and admitting that the fiat money system in place since August 15th 1971 is imploding can we begin to explore ways of extracting ourselves from the certain detonation of the debt bubble.

    • Hi Private Fraser

      I agree that interest-rates need to rise but sadly the Bank of England has missed several opportunities to start on that road and now we face a period where the economic boat has sailed. As to Bretton Woods it is not that long ago in monetary terms so should things blow up historians will look at it as quite a failure. We will have to see as only time will tell.

  7. hello shaun,

    used have the motto – no pain , no gain in the 1980’s

    now its all pain , no gain

    as for a rate rise or fall ? if MC says anything , do the opposite!

    one does wonder what any CB will do next , they have had 10 years to fix this mess .

    now it appears that we’re entering the next down turn …. if so expect QE27 and BIRP
    say -1% or -2% but if they do…… BOOM!


  8. The sign of things to come? Recently Argentina’s central bank tried to stem the collapse of the Peso, since the end of April it put up interest rates nearly 13% and today bought $1billion worth but it still ended down on the day, Bloomberg cites the central banks error earlier when it cut interest rates whilst ignoring high inflation figures – sound eerily familiar to Carney prophesing he was prepared to “look through” high inflation as it would be only “temporary”???

  9. The purpose of forward guidance has never been to let us know what they are likely to do.
    Not incompetence, deliberate lies.
    The purpose has been ti get as much of the effect of a rate rise without actually doing it, i.e. so that the market “prices it in.”.

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