Five things to expect from the Bank of England minutes
With the minutes from the Bank of England's October meeting expected to be somewhat uneventful, economists are preparing to drill into the detail for clues as to when it will start raising interest rates.
This month's meeting took place ahead of the second round of so-called "Super Thursday", when the central bank treats investors to its interest rate decision, minutes and quarterly inflation report all at once. As such rate-setters are likely to hold off
More hawks to ruffle the Bank's feathers?
A minority of economists expect at least one other Bank of England rate-setter to turn hawkish, however most will be looking for clues that
Unit labour costs, seen as an indicator of underlying inflationary pressure in the UK economy, beat economists' expectations in the second quarter. "The second quarter figure was 2.2 per cent year-on-year, so providing ammunition for anyone that might be on the verge of of voting for a rate hike," Alan Clarke, economist at Scotia Bank, said.
Meanwhile sterling has weakened since the committee last met, which would've added upwards pressure to inflation, by increasing the cost of imports from countries such as the US and Europe.
"Last month’s minutes showed that there were some members of the MPC that already saw upside risks to the Bank’s inflation projections. This movement in the pound should make them even more confident in that view," Clarked added.
More throughouh review of forecasts in November … hold ground ahead of the next quarterly inflation report which is due in November.
"With just a month until the next quarterly inflation report forecast we doubt the October monetary policy committee meeting will break much new ground," Ross Walker, RBS, said.
script. As Governor Carney put it at Jackson Hole: ‘‘The prospect of sustained momentum in the UK economy and the gradual firming of underlying inflationary pressures will likely put the decision as to when to start the process of gradual monetary policy normalisation into sharper relief around the turn of this year. To be clear, that opinion doesn’t prejudge any particular decision. But it does indicate that recent events do not yet, to my mind, merit changing the MPC’s strategy for returning inflation to target.’
Since then the global backdrop has been darkening: … will look at these an express a preference to assess in October. Although financial market volatility remained elevated in September, it had eased somewhat.
Ian McCafferty
"October's monetary policy committee meeting and minutes are likely to be rather uneventful – a repeat 8 – 1 vote, with little new ground being broken," Ross Walker, RBC said.
Thursday. We expect the MPC to again vote 8-1 in favor of maintaining the Bank Rate at 0.5%, with Ian McCafferty continuing his call for a 25bp rise.
Hawkish pressures are building – RBC
Indeed, in a recent speech by Ben Broadbent, Deputy Governor, he said, “Given the pressure from overseas and from the exchange-rate strength on imported prices, if anything we need to see faster growth of unit labour costs than the 2 percent inflation target”. Well, now you have it! – UniCredit
"How strongly worded the text about the hawkish group are – i.e. is it still judt upside inflation risks or has the crunch in the currency and rates strengthened those to the extend that a hakwish dissent or two might come in November."
Unit Labour Costs were much higher than expected in Q2. This is an indicator that both Mark Carney and Deputy Governor, Ben Broadbent have highlighted as being a key issue. They wanted to see an acceleration from around 1% y/y to the high 1s or low 2s. The Q2 figure was 2.2% y/y, so providing ammunition for anyone that might be on the verge of voting for a rate hike.
Unit labour costs – which balance wages against productivity – and are important indicator of inflationary pressures in the UK economy. – were much higher than expected in the second quarter of this year. HOW MUCH SOMEONE RECEIVES TO PRODUCE A SET AMOUNT OF OUTPUT
Unit labour costs, seen as an indicator of underlying inflationary pressure in the UK economy, beat economists' expectations in the second quarter. "The second quarter figure was 2.2 per cent year-on-year, so providing ammunition for anyone that might be on the verge of of voting for a rate hike."
The pound has weakened by around 2.5% since the BoE last updated its economic projections. This points to upward pressure on the Bank’s medium term inflation projection. Last month’s minutes showed that there were some members of the MPC that already saw upside risks to the Bank’s inflation projections. This movement in the pound should make them even more confident in that view.
That PMI survey …
Economists were feeling nervous after …
"We believe the risks around the latest data and business surveys to be tiled towards the downside," Ross Walker, RBS, said.
"It’s a very disappointing number indeed: of all the softer numbers coming out of the UK in the last month or so, today's services PMI report is the single most important piece of information. That’s because the services sector accounts for 78% of UK economic activity and, crucially, it has been the engine of UK economic growth," Daniel Vernazza, economist at UniCredit, said.
Industrial production data out tomorrow
Financial markets are mispricing the risk of a rate rise
Financial markets show that traders are pushing back expectations of when the Bank will pull the trigger, and it's currently 2017,
Financial markets don't see an interest rate rise until
Financial markets show traders don't expect interest rates to rise until 2017
Financial markets have been pushing back expectations for when rates will rise – and it's currently 2017.
Financial markets don't expect a rate rise 'til [XX]
Since the MPC’s last meeting, financial markets have pushed out their expectation for the timing of the first rate hike, from July 2016 to December 2016 – a substantial 5 months.
"Indeed, since the MPC’s last meeting, financial markets have substantially pushed out their expectation for the timing of the first rate hike from July 2016 to December 2016. In our view, this is unwarranted, and the minutes will signal as much, as the news on the month is marked by further evidence of firming wages and unit labor costs and, if anything, a slight easing of external headwinds," Daniel Vernazza, economist at UniCredit, said.
"majority view will probably be more dovish than in September but I doubt it can be dovish relative to where the market is now price"
Will the MPC make any observation about the fact that the markets have pushed back their expectation of the first Bank of England hike to late-2016 or early-2017?