MacroScope

UK rate rise this year? Possible, but not certain yet

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“It could happen sooner than markets currently expect.”

That was the bomb of a headline Bank of England Mark Carney dropped in a speech on Thursday that suggested a significant change in tone at the bank.

So far, Carney has seemed comfortable with keeping rates at a record low of 0.5 percent for another year. That has been the forward guidance markets have been following.

But are many now convinced that Bank Rate will go up earlier?

Not yet, but some.

Given that Carney’s remarks come only a month after he outlined a dovish outlook for rates in the May Inflation Report, he took many by surprise, sending sterling to just under $1.70 and rallying to less than 80 pence per euro.

A 10 percent rise in sterling over the past year has already been doing some of Carney’s tightening for him.

And short sterling interest rate futures are now pricing in a 25 basis point rate rise by December.

Is it time for the ECB to do more?

From financial forecasters to the International Monetary Fund, calls for the European Central Bank to do more to support the euro zone recovery are growing louder.

With inflation well below the ECB’s 2 percent target ceiling and continuing to fall, 20 of 53 economists in a Reuters Poll conducted last week said the bank was wrong to leave policy unchanged at recent meetings and should do more when it meets on Thursday.

And the pressure on the ECB to do more has mounted after the preliminary inflation estimate for March was published on Monday. The data showed inflation cooling down further to 0.5 percent, its lowest since November 2009.

Forecasting gymnastics on the BoE’s printing presses

The fluctuating fortunes of the British economy in the last year have left forecasters in a fix, unable to make up their minds how much longer the Bank of England’s money printing presses need to roll on.

Forecasting gymnastics on the subject could make many economists Olympic contenders for the gold medal.

Deutsche Bank, Morgan Stanley and Lloyds Bank are the latest to predict the BoE will announce that it will buy an additional 50 billion sterling worth of government bonds, taking the total amount spent in the programme to 375 billion sterling.

BoE rate decision has echoes of Jan 2007

By Sumanta Dey in Bangalore Mervyn King

The BoE is expected to keep rates on hold at its monthly meeting today. Sixty-two out of 63 economists polled by Reuters expect such an outcome. Statistically speaking, that is more than a fair majority. But are we in for another upset like the one more than four years back? At that time, Simon Ward of Henderson Global Investors was the only economist correctly calling a rate hike.

There are a number of spooky similarities today that point to an almost identical scenario.

Leading up to January 2007, inflation in the UK was almost 3 percent, well above the bank’s 2 percent target. January 2011 inflation read at 4 percent. Then, Simon Ward forecasted the BoE to raise rates by 25 basis points in January, and placed a 55 percent probability on it — the only one out of 50 economists . Last week, he made exactly the same call for the outcome at this meeting and was the only one who saw a hike in rates today out of 63 economists.

Broadbent’s BoE appointment keeps hawks in health

BRITAIN-BOE/Ben Broadbent’s appointment to the Monetary Policy Committee ought to dispel any notions that the Bank of England would be left short of hawks after the departure of Andrew Sentance.

A brief look at the history of Reuters polls shows that Goldman Sachs’ UK economists – led by Broadbent – were uber-hawkish in their outlook for British interest rates early last year.

In January 2010, Goldman predicted rates would rise to 1.5 percent by end of the second quarter of last year, and 2.5 percent going into 2011 — hugely out of step with both the consensus and as it turned out, reality. Rates went nowhere last year, and are still at a record low of 0.5 percent.