Bank of England’s ‘Super Thursday’

"Super Thursday" was a success for the Bank of England. As of this meeting, BoE rate decisions which occur at the time of the Inflation Report release will be accompanied by immediate release of that meeting’s minutes. That will include disclosure of the specifics of the rate decision vote along with the inflation report. It will be followed by the Inflation Report press conference, which obviously also becomes the post-rate decision press conference

It seems this was a great success. In central banker terms, success is often measured by how little the markets react to any surprises. And during the press conference the markets were significantly calm, only moving once it ended.

That was so even though It was a bit of a surprise that the previously more hawkish Governor Mark Carney had to allow the inflation outlook was more subdued than expected. He clarified some aspects of his previous allegedly aggressive rate view. That related to some folks (other than this analyst) misinterpreting his previous comments as indicating the date of a future rate rise, rather than when it would be assessed.  

 

What Governor Carney had to say

▪ The confusion over his perceived hawkishness was inferred from a speech he gave in Lincoln three weeks ago. As the ‘Street’ is obsessed with the initial rate hike timing not just by the BoE but obviously also the Fed, it read too much into his comments. What he actually said was that year end was when the pressures would be sufficient to foment a more serious BoE assessment of when it might be appropriate to provide the first rate increase in many years, not the actual horizon for that hike.

▪ The actual Monetary Policy Committee vote was only one for a hike at this meeting and eight votes to hold the rate steady at 0.50%. This was also a bit more dovish than expected, yet was in line with the recent deterioration of inflationary pressures.

▪ That played right into the recent influence from weaker commodity and energy prices, which would mechanically translate into more subdued inflation statistics in the near term. He allowed that current commodity price weakness does give the BoE (and by extension other central banks we suppose) more latitude to address any inflation closer to the actual return of higher prices instead of needing to be overly anticipatory.

 

Are Bank of England estimates too optimistic?

▪ On another important front, it was noted that the Inflation Report "fan" charts for GDP consistently showed the economic growth indicators coming in at the low end of the midstream band. In response to that question Carney had to allow that unless things change the Bank might indeed need to be a bit more conservative in its forecasts.  

▪ Regarding the negative international influences from the latest Greek turmoil and the Chinese stock market selloff, he was rather sanguine. His and the Bank’s only real concern was how any events might affect the broader economic fundamentals. He demurred from exploring whether especially the Chinese weakness might indeed affect the broad global economic performance.

 

Market thought

▪ In light of the market responses (even to the allegedly "decent" U.S. Employment report on Friday), my consistent skepticism toward equities and nominally friendly view of government bonds (shared by more than a few others) still seems warranted. And the BoE Inflation Report and extended discussion of near term factors at the BoE press conference continue to caution against anticipation of too much short-term growth and inflation, or the need for rate hikes.

 

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About the Author

Alan Rohrbach is Lead Analyst and President of Rohr International, Inc.  He is an international equity index, interest rate and foreign exchange trend advisor.