The Bank of England decided to do absolutely nothing yesterday, in its first big opportunity to cut rates since the Brexit vote.
The non-move was a big surprise. All of governor Mark Carney's dire warnings had primed the market for action. As a result, sterling surged by as much as 2% against the dollar on the news.
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The Bank reserved the right to act next month. But by then, itcould be running into some competition
The pound may soon face competition for world's weakest currency
It was a bold call. But after yesterday's inaction by the Bank of England, he might well be right.
Of course, the pound is by no means out of the woods yet. Apparently "most members of the committee expected monetary policy to be loosened in August". So we'll see what happens then.
However, the longer it waits, the more the Bank is going to come up against increasing levels of competition in the currency devaluation stakes. Amid all the breast-beating about a weaker pound, many people are forgetting that we've been engaged in a race to the bottom on the currency markets for some time.
We've got murmurings in Europe about how to bail out the region's banking sector once again. We've got a reinvigorated Japanese government looking to move to the next phase of Abenomics.
By the time Carney and co get around to launching their next bout of quantitative easing, or cutting rates from "exceptionally, unprecedentedly low" to "barely above zero" (and how much difference can the latter really make?) they might be spitting into the hurricane of helicopter money from the east.
We'll see. But for now, the pound is probably finding its new level, and moves in the currency between now and the next BoE meeting will depend on domestic and global economic data, and any loose talk from Carney the usual stuff, in other words.
A populist revolution that could pay off
The most obvious casualty is George Osborne. The ex-chancellor did some things right. He talked a good game back in 2010 when things looked very wobbly for the UK economy. And his pensions freedom changes were bold and overdue and, we think, extremely helpful to investors in the long run.
But he was also a terrible tinkerer along the lines of Gordon Brown, which boiled down to the fact that he wanted the top job. A chancellor who wants to be prime minister is always going to use the Budget as a political platform, a sounding board, a recruitment campaign and that was increasingly apparent in his most recent budgets.
So it's a good thing he's gone, and hopefully Philip Hammond will be more focused on stability than faffing around. I don't necessarily hold out much hope for that, but the fact that he's ruled out having a snap Budget is good news. He's clearly not planning to hog the limelight just for the sake of it.
May hasalso made it very clear that "Brexit is Brexit". Boris Johnson, David Davis and Liam Fox are all prominent Eurosceptics, and they're pretty much in charge of dealing with Britain leaving the EU and negotiating better deals with other countries around the world.
As the FT points out, Johnson may seem an odd choice, but in fact, he's not the one in charge of the EU/Brexit side of things that's Davis, heading up the new Brexit department. Meanwhile, Fox is the one in charge of getting trade deals done, in the new department of international trade.
It's probably better to understand Johnson's job at the Foreign Office as an extension of his job as London mayor. He's a prominent figurehead and someone who's good at doing the "charisma" thing and grabbing headlines, but with a lot less actual power than you might expect.
On the trade side, it's encouraging to see that we're already having "chats" with other countries about trade deals. Apparently the US, which was going to send us to the "back of the queue", is now holding "preliminary discussions" with us, says the FT.
As well as the prospect of a bilateral trade deal, the US is also revisiting the TTIP deal (Transatlantic Trade and Investment Partnership) which has been in discussion with the EU for the past three years. They're still hoping to keep us involved in that "The UK is a very significant part of the EU and a very significant part of what makes TTIP attractive", said US trade representative Mike Froman.
We'll be looking at all of this in more detail next week. Meanwhile, in the latest issue of MoneyWeek magazine, we take an early look at May and her plans to rein in the worst excesses of the City particularly dealing with the ludicrous levels of top executive pay.
If she can bring a touch of real capitalism the sort that benefits everyone back to the markets, then this could be one populist revolution that pays off.
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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