So the Bank of England (BoE) didn't cut rates despite the market giving a cut of 0.25% an 80% chance. Why?
The first obvious reason is inflation the recent fall in the trade-weighted value of the pound will obviously slightly increase the risk of more appearing (note by the way that the consumer price index (CPI) has risen by over 17% since 2009 inflation is not dead).
However, the second reason is more interesting. Perhaps the BoE, now the scaremongering phase of the Brexit referendum is over, is admitting internally at least that it really isn't the end of the world they won't actually know the extent to which the vote has affected the economy (for good or bad!) until they have some data from the post-vote period. Or, as the analysts at State Street put it: "there is some uncertainty as to how rapidly the economy will actually slow" as a result of Brexit.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
This is, we think, pretty good news. The BoE is no longer making unsubstantiated assumptions about the future it is noting that the UK is extraordinarily politically stable and waiting to see how the growth and inflation data changes first.
The City, unfortunately, isn't taking the same small steps towards rationality. 100% of the press releases we have received so far assume that there will be fast deterioration towards the end of the year; that the deterioration will be 100% Brexit related; and that the BoE will cut aggressively' in August as a result. We wonder.
Like many people, we aren't convinced that loose monetary policy is working and we would also say that the BoE does still have an inflation mandate. Inflation has spent nearly 70% of the last decade above 2% (Pantheon Economics) and if rising import prices now mean that inflation forecasts surge into the 3% range will Mark Carney really feel comfortable cutting the UK base rate to almost zero?
There is no accounting for the behaviour of central banks these days and, under the circumstances Carney won't want to disappoint the market too much. But an aggressive cut combined with a round of QE surely isn't as much of a given as the market expects.
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
