18. October 2017, 17:01 Uhr
First, she took investors completely by surprise; then, she corroborated on that; and now, it appears she has gotten a bit ahead of herself. She, of course, is the Old Lady of Threadneedle Street, the Bank of England.
Back in June, the 3-5 vote by the bank’s Monetary Policy Committee (MPC) in favour of a rate raise jolted markets who had grown accustomed to the two perennial hawks of the committee remaining in their tiny minority. Several weeks after that initial shock, no other than the BoE’s governor, Mark Carney then lend his support to the hawks stating that the time had come to put an end to ultra-loose monetary policy. That line, finally, has been taken up by other members of the MPC and has been reiterated time and again by the governor himself; thus, markets as recently as the beginning of this week priced in an 80 per cent likelihood of a rate rise as early as November. However, just yesterday, Mr Carney’s somewhat cautious phrasing in his appearance before the Commons’ Treasury Committee appeared to indicate that, though he still thinks a rate rise be justified in the months ahead, it need not necessarily be in November already – and we can easily see why.
Though we early pointed out the quagmire the Bank of England currently finds herself in, we have been doubting more than one rate hike until late 2018 – subject to the development of Brexit, of course.
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Certainly, inflation is significantly above the central bank’s comfort zone, squeezing workers’ real pay by consuming money wage rises. Yet consumers are precisely the reason why we think more than one rate hike in the months ahead is not very likely. For consumers’ surprisingly jaunty, credit driven spending propensity propping up retail sales all over those months since the Brexit referendum in June last year has been supported mainly by one thing: rising house prices. Alas, those have been starting to go into reverse of late, with the usually frothy London market in the lead. If this reversal is continued, the last thing the market needs is a rate rise hitting mortgage servicing simultaneously: After a brief drop in the aftermath of the Great Recession, Britain’s consumers have again risen into the top five of G20 countries, ranked according to household debt relative to income, with unsecured consumer debt at a staggering £200bn. And for all the talk about inflationary pressure, the most important ingredient to that remains subdued: money wages. Today’s most recent print for the three months to August showed a 2.2 per cent pay rise year-on-year, just as has been the case for most of the year. As long as there is not anything near a wage-price spiral discernible, we think the Bank of England will be very wary not to push an economy on the brinks of Brexit over the cliff.