It Ain't What You Do It's the Way That You Do It

Generali

According to Andrew Sentence.

http://www.ft.com/intl/cms/s/0/4b15a798-9323-11e3-8ea7-00144feab7de.html?siteedition=intl#axzz2t5uiwGzc

Perhaps interest rates will rise sooner than people think in the UK.

UK interest rates will rise sooner than markets expect, possibly before the end of the year, according to three former members of the Bank of England Monetary Policy Committee.


Speaking at a briefing hosted by Fathom Economics, Sir John Gieve, a former BoE deputy governor, said there was “a good chance” rates would rise this year, adding: “These are emergency rates of monetary policy. We should be expecting them to normalise over a period.”

Most City economists are not pencilling in a rate rise until the second quarter of 2015 but the comments from former MPC members, who know in detail how the committee operates, show how quickly the UK’s economic landscape has shifted.


Sir John dismissed suggestions that rates would be on hold until after the general election, saying the MPC was independent of any political consideration. He added they would be alert to signs of reduced slack in the labour market and there was “a hell of a lot less [slack] than believed in August”.

Requires a free subscription but you get the gist.

My feeling is that turmoil from US tapering might require rate rises in the UK.

purch

Generali wrote: »

My feeling is that turmoil from US tapering might require rate rises in the UK.

Well Janet Yellens Humpty Hawkins address was surprisingly "undovish" ....whilst she did say that the Fed would be keeping rates at or around zilch for quite some time she didn't seem to suggest that tapering would slow or stop.

She has to answer all the dumb questions the congress ask today, so we might get a better idea of her tack.

wotsthat

UK interest rates will rise sooner than markets expect, possibly before the end of the year, according to three former members of the Bank of England Monetary Policy Committee.

Today Carney is going to try and convince us that the very opposite is true.

Some interesting tightrope walking to be done.

michaels

Generali wrote: »

My feeling is that turmoil from US tapering might require rate rises in the UK.

What is the mechanism for that? - is it because funding the deficit will become harder or is it via Sterling weakness with 'hot money' outflows putting pressure on the exchange rate?

Generally the Bank seems to have been pretty clear lately that it is only (potential) inflaton caused by domestic supply pressures that concerns them, imported inflation from currency weakness or commodity price increases seems less of a concern.

(Although as an aside it would be interesting to see what would happen if overall prices were flat because falling commodity prices were offsetting rising labour costs...)

Bantex_2

How does the BoE mechanism work?

If Carney makes a bold forward guidance statement and next month the committee vote against it, what happens?

purch

He loses..............

purch

michaels wrote: »

What is the mechanism for that? - is it because funding the deficit will become harder or is it via Sterling weakness with 'hot money' outflows putting pressure on the exchange rate?

If US Treasuries fall, so will Gilts (and most other sovs). It would become increasingly difficult for the Bank to maintain a much steeper yield curve than we have now.

Bantex_2

purch wrote: »

He loses..............

Loses what?

purch

the Vote..............

Bantex_2

purch wrote: »

the Vote..............

Does that not sort of defeat the object of forward guidance if he has no direct control over it?

Sort of make it his personal wish list rather than a matter of policy.

dotdash79

I doubt that Carney forward guidance has been written just by him without the rest of the MPC.

It's wage growth that will drive the decision to push rates up, once that starts to go up it will signal that capacity in the labour force is tightening.