This piece argues that last week’s susprising-hawkish MPC vote and minutes do not represent a dramatic change in the picture for UK monetary policy. The limits to the MPC approach of looking through temporarily above-target inflation, driven by sterling’s post-referendum depreciation, are further from being reached than the minutes-related headlines suggest. So the limited rebounds … More Fade hawkish MPC minutes: contrary to MPC three judgements plus downside risks to UK consumption & net exports
This piece previews Thursday’s Bank of England Feburary Inflation Report and MPC minutes, where the key issues will be: (i) how much longer can consumption continue to be the single engine generating UK growth?; and (ii) MPC remain tolerant of prospective above-target inflation? The main points are: MPC will as expected by the market undoubtedly … More February Inflation Report Preview: Focus on Consumers and Inflation Expectations
Recent positive UK data surprises have caused economists to revise up UK growth forecasts and BoE Governor Carney recently hinted that the February Inflation Report would follow suit. Despite that, my argument from last October that UK net exports were likely to disappoint, even with sterling’s sharp depreciation, has proved accurate thus far (Q3 UK … More Poor UK Net Export-Inflation Tradeoffs Following Sterling’s Depreciation
This mornings’ substantially better than expected UK manufacturing PMI release – rising to an 10-month high of 53.3 in August, versus market expectations of a smaller bounce to 49.0 after July’s 48.3 – has generated substantial market commentary. The broad-based nature of the bounceback was notable, with rebounds in both the output and new orders balances. … More Pleasantly-surprising manufacturing PMI doesn’t mean the UK’s out of the Brexit woods
Margaret Thatcher’s 1979 election victory speech famously quoted St Francis of Assisi: “Where there is discord may we bring harmony, where there is error may we bring truth, where there is doubt may we bring faith, and where there is despair may we bring hope.” The decision to hold a UK EU membership referendum has … More Brexit vote: where there is harmony may we bring discord (global concerns, UK recession, MPC rate cuts and further £ falls)
Financial markets approach tomorrow’s UK EU referendum vote apparently pretty confident that “remain” will prevail. While I’m hopeful of a “remain” vote – I’m one of the 90%-plus off economists who firmly think that Brexit would generate significant UK/international macro costs and might not end up solving immigration concerns (if single market access is to … More EU Referendum: hoping for “remain” but markets overly sanguine
This post considers whether sterling’s post-April rally represents an overshoot and dissects the May Inflation Report’s treatment of Brexit-affected asset prices. The main points are: Sterling has, as I expected, continued to closely track betting market Brexit odds, recently down to the low-20%’s from over 40% in April, but has also been supported by the continued … More How fragile is sterling’s recent bounce? Should MPC have also adjusted OIS rates in May?
The following previews Thursday’s BoE May Inflation Report (IR) and MPC minutes. Overall MPC seems unlikely to give a strong policy steer, given the proximity of the EU referendum vote. So rate and FX market impacts are likely to be limited – although probably dovish at the margin (and perhaps a bigger FX impact) despite … More MPC Preview: detailing Brexit uncertainty impacts, downplaying forecast inflation overshoot
With everyone on tenterhooks about whether PM Cameron will manage to secure an acceptable deal at the EU summit, paving the way for a likely June UK EU referendum, I detail the impacts on markets thus far and the likely future propects. This follows my previous post where I correctly argued that growing Brexit uncertainties … More GBP: Riding Brexit Uncertainties
This morning’s surprisingly-weak UK pay data provide further ammunition to the dovish MPC members and the growing sense that the Committee really is in no rush to start raising interest rates and want to try and differentiate themselves from the Fed. That said, the recent UK pay growth slowdown has limited implications for inflation under … More Caution in Threadneedle Street: weak pay growth supportive near-term but watching the Fed carefully
Tomorrow represents a landmark in BoE communication: the MPC decision, MPC minutes and August Inflation Report will be released simultaneously at 12 noon, with the IR press conference starting at 12.45. With a view to the deluge of information to process, I offer some views on what market participants should be paying watching out for, … More Bank of England Super Thursday: Three is the magic number for further GBP strength?
This morning’s BoE data (for June) contained two potential downsides: (i) weak corporate borrowing, actually involving net repayments on the month even on the broader total external finance measure and a rise in borrowing rates equivalent to a 25bp MPC rate hike; (ii) a fall back in foreign demand for UK government securities. Against that, … More Divergent UK sectoral borrowing trends and reduced foreign demand for UK debt: monetary policy implications?