Tag: Brexit

Hmmm- Interesting!

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I woke up this morning quite excited. Today was the big day! The day we would find out whats going to happen to interest rates. I even had it in my outlook calendar (yes, perhaps only an economics geek would get this excited.) But this was no ordinary MPC meeting-you know, the type where nothing ever actually changes.

The markets waited with baited breath. Would it be .25? 0? Or even a rather trendy negative? Hey, if its good enough for the Japanese…

There have been a few voices calling for such insanity, but most, including me, expected a cut to 0.25%. Given the eagerness to intervene in recent weeks- by reducing the counter cyclical buffer so that  banks can lend out more money- and the hints of a rate cut and QE, combined with the less than positive emerging data on consumer  and business confidence, it seemed a fair bet.

So I was surprised and pleased to see that they had decided by a vote of 8-1 to…wait for it….

‘maintain Bank Rate at 0.5%‘

Business as usual then-but not for long.

The Pound jumped up against the dollar-in fact there was a gap of  as it launched itself from $1.3235  to the  relatively heady heights of $1.3463.

But the FTSE 100 and 250 looked none too pleased, falling 1.23% 0.8% respectively. I guess the FTSE100 fared worse because many of the companies earn money overseas so the and so a weaker pound means they get more of them when their foreign earnings are converted.

Brexit certainly hasn’t been short of surprises and today was no exception.

Markets were ‘disappointed’ and Governor Mark Carney was accused of dithering and changing his tune. Well, it wouldn’t be the first time. I cant help wondering if maybe he hinted at rate cuts to see how the markets might react to a real rate cut. Or perhaps he was just buying some time until the economic situation became clearer.

Now if I was a market I might possibly take this as a good sign that at least for now most of them aren’t convinced that things are really bad enough yet to justify a cut.

Yet.

So why was I pleased? Well it looks like monetary policy actions are a bit like buses. Not much happens for a while and then suddenly three come along all at once.

The bank has a careful balancing act between acting too soon and possibly running out of ammunition before anything (much) has really happened (more on this in a later  post), and waiting until its bad enough to act upon. But by then people have been hurt. Jobs have been lost, houses repossessed.

The main reason for todays inaction is that they feel that they simply don’t have enough data to make an informed decision. So however disappointed the markets might be, it is a sensible one. Don’t try to rescue something until youre sure it needs rescuing.

It probably wont last though. The Bank will know way more in August when they publish their latest GDP forecast and the MPC have hinted strongly that a rate cut is likely to happen then.

But hey, if they are in doubt about how bad it could get, they could always consult the Bank of England’s Q2 inflation report-you know, that report! The one that scared everyone.

 

How to Win Friends and Influence People

When I was a teenager, my parents would often try to ‘help’ me make my own decisions. ‘Theres option a,’ theyd say. ‘And it’s a really great one because of xyz. Or you could do option b but that would be really horrible-but of course the decision is entirely yours.’

Ah such happy memories!

Now forgive me if Im wrong, perhaps Im mistaken in thinking that a referendum is where you give people a choice and then let them decide.

But apparently, the way it works in the UK is ‘we’ll have a referendum but we’ll tell everyone how we want them to vote. And if that doesn’t work we’ll get our friends in high places to dish out some scary forecasts-‘see look! They agree with us, now isn’t that a funny coincidence!’

While doing a rather tedious but necessary task at work today, instead of reaching for my usual remedy to keep my mind focused (which is normally listening to My Chemical Romance or any good chart songs I like the sound of), I tuned in to the live stream of the Treasury Select Committee grilling senior members of the Bank of England about their latest Financial Stability report.

I wasn’t actually watching it, I was just listening, but I swear I could hear the cogs frantically whirring as Bank of England Governor Mark Carney was asked about some ‘private meetings’ hed had with Chancellor George Osborne.

Ironically, these committee hearings are there to promote transparency.‘Sure were transparent-but please! For Gods sake don’t publish the minutes of our private meetings!’ When asked by the committee if they could see the notes from these meetings, Mr Carney said  ‘he would not want to create a situation where those conversations were “minuted, recorded, tweeted in real time, that is not in the interest of monetary and financial stability.’ (Neither is issuing  dire forecasts Mr Carney!) But just to ease your mind, Ill tell all those people lurking behind the curtains secretly tweeting your every move to go away.  I can see his point however-one word from him can send the markets tumbling or rising, as has been seen in recent weeks.

He reluctantly agreed, but I cant help wondering whether there will be a full compliment of notes handed over. Reminds me a bit of when you were a teenager,  and your parents demanded to see your record collection, and you quickly hid all the ones with explicit lyrics under the bed and produced the most innocuous set of albums you could find.

When asked whether any politicians had ever tried to influence him, Mr Carney said that when he was the Governor of the Bank of Canada he couldn’t remember that ever happening. Good to know. And so…. how about now?He insisted that no one had tried to influence him, merely to ‘inform’ him. Because of course, the head of an institution that publishes reams of (fascinating in my opinion) data on the UK economy, needs to be informed.

A few weeks ago everyone was blaming Boris Johnson, conservative MP and former mayor of London, who led the Leave campaign. After pulling out of the Tory leadership race he was accused of ‘abandoning a sinking ship,’ ‘unleashing intolerance’ ( there was a rise in racial abuse crimes immediately following the result), ‘knocking billions off the value of the nations savings’, practically bringing down the government, –basically singlehandedly bringing the country to its knees. Quite an accomplishment for one man. Never mind  all those other people who voted Leave.

Ah well, people love a scapegoat. So while everyone was busy pointing the fingers at Boris (not to mention shoving a few knives into his back), Mr Osborne gets to back away quietly hoping that no one will realise this mess is actually all his fault.So confident was he that wed never actually vote to leave, that he didn’t even plan for it. At least the Bank of England did, albeit in secret ( I guess all those people frantically tweeting every word were successfully rooted out.)

With a reckless disregard for the consequences, as well as threatening us with tax rises and spending cuts, he warned that  interest rates would go up. Odd, given all those meetings he had with Carney and yet he still appeared to have no clue about the action he  would likely take in the event of a leave vote. I mean seriously, Mark Carney putting interest rates up? ‘Well I was gonna get round to it at some point…’

 I cant help wondering what things would be like now if we hadnt had all those dire warnings. Now, everyone thinks there will be a recession because everyone thinks there will be a recession. Sure, there are a few tangible risks in the future but Ill talk more about them in an upcoming post. But a lot of this is just based on fear.

Its interesting  to note that it was only after the result that other analysts, those without any close links to the government (not that Im aware of anyway), began to downgrade their forecasts. Perhaps they were just slow off the mark-oops! We really didnt see that coming-better revise the forecasts down!

Or perhaps we are just seeing a real life episode of Yes Minster being played out in reverse.

Oh well, looks like Mr Osborne wont have the privilege of ‘informing’ civil servants for much longer.