A Bank of England dovecote?

November 12, 2014

Bank of England Governor and Financial Stability Board (FSB) Chairman Mark Carney arrives for a news conference at the Bank for International Settlements (BIS) in Basel

The Bank of England will produce its quarterly inflation report today. With wage growth still notable by its absence and inflation dropping to just 1.2 percent in September, noises from within the BoE suggest the timing of a first interest rate rise is heading further over the horizon.

Our latest poll shows economists expect no rate rise from a record low 0.5 percent until the second quarter of next year, later than previously thought and potentially after the May 2015 general elections. They also expect the Bank to cut its growth and inflation outlook in today’s report.

That’s the way the wind is blowing. Chief economist Andy Haldane has recently said he was becoming more gloomy, Deputy Governor Minouche Shafik said the Bank would need to see more evidence of price pressures before acting and her fellow deputy, Jon Cunliffe, said it could afford to keep rates low for longer than first thought.

Nonetheless, Britain enjoys growth rates which most of Europe could only dream of. Data this morning are expected to show the unemployment rate has fallen below 6 percent for the first time since late 2008.

London also hosts two interesting central bankers, who have been dissenting voices, for speeches today:

Federal Reserve Philadelphia President Charles Plosser is among the minority of Fed officials who want to tighten monetary policy before mid-2015, which is when most of his colleagues see a first rate rise. Yesterday, he said near-zero U.S. interest rates were too low and should make the central bank nervous.

Bank of Japan board member Takehiro Sato was one of the board members who voted against Governor Kuroda’s proposal to print more money. It was carried by just five votes to four. He may have interesting things to say for European ears given Japan’s long experience of deflation.

Bundesbank chief Jens Weidmann speaks in Germany late in the day. European Central Bank chief Mario Draghi fashioned unanimous backing last week for his target of how much money he wants to pump into the euro zone economy. Weidmann has already opposed some of the ECB’s extraordinary policy moves and late last week was heard to say that the planned balance-sheet expansion was an expectation not a target. Any signs of division or dissent will be leapt upon.

The German government’s panel of economic advisers unveils new growth forecasts for this year and next. On Friday, GDP data are predicted to show Europe’s largest economy grew just 0.1 percent in the third quarter having shrunk 0.2 percent in the second.

Hungarian Foreign Minister Peter Szijjarto is in Berlin to meet German counterpart Frank-Walter Steinmeier. Watch for signs of German annoyance at Hungary’s cosying up to the Kremlin.

Kiev accused separatists of preparing for renewed conflict in east Ukraine by bringing in “Russian mercenaries” and rearming as heavy shelling increased strains on a crumbling ceasefire. The European Union’s foreign affairs chief said the bloc’s foreign ministers would discuss new punitive measures against Russia next week, but German Chancellor Angela Merkel ruled out further economic sanctions for now.

Russia’s rouble has weakened slightly in early trade. After the central bank essentially let it float, its precipitous fall briefly halted but most experts say it has further to drop given the hit to the Russian economy from western sanctions and tumbling oil prices despite having already shed 30 percent versus the dollar this year.

Spanish premier Mariano Rajoy will hold a news conference. Look for any indications that he is prepared to devolve more powers to restive Catalonia after an informal weekend vote overwhelmingly supported seceding from Spain, albeit on low turnout. Rajoy has said he is ready to talk about the measures, agree on a new system to finance Spain’s 17 autonomous communities and discuss a reform of the constitution, but he opposes holding a binding vote on secession in the region.

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