This Thursday is Guy Fawkes Night, but before the bonfires are lit and the pyrotechnic displays are underway, The Old Lady of Threadneedle St. may offer a few fireworks of its own. As it is November, we’re due another ‘Super Thursday’ policy announcement extravaganza wherein the Bank of England Governor Carney will deliver the minutes of the latest meeting alongside its policy decision before presenting its last Quarterly Inflation Report of 2015, 45 minutes later.
The first ‘Super Thursday’ took place in August and was justifiably overshadowed by Stuart Broad skittling the Australians at Trent Bridge. That meeting took place five days before the People’s Bank of China’s revaluing of the yuan and changes to FX policy; the landscape for markets – and, coincidentally, English sport – have shifted somewhat since August 6th.
The five questions we had before the inaugural ‘Super Thursday’ were:
- Would someone vote for a rate hike?
- What do the economic projections look like?
- Is the pound too strong?
- What about the risks in emerging markets?
- How will this new regime shift communications from the central bank?
Most of these have been answered. McCafferty has been ploughing a lonely furrow in voting for a 25bps increase since August, although Members Weale and Forbes are seen as close to joining him. Inflation expectations were seen to remain weak in the short term with a warning coming that the pound could have a “persistent CPI impact” and the Bank of England has strained at the bit to emphasise that the relative impact of a slowing emerging market picture will do little to harm the UK economy.
So what about now?
The Bank will not change policy on Thursday and there has been little to suggest that Members Weale and Forbes are any closer to joining McCafferty and dissenting. Likewise, we expect that Andy Haldane will not feel the need to act on his concerns around deflation and vote for an increase in asset purchases or a cut in interest rates.
The minutes will continue the conversation about a solid yet unspectacular economy that is likely to see inflation come higher as the base effects of the fall in oil and energy prices fall out of the inflation basket and wages are boosted by a tightening labour market.
Within the Inflation Report, there are again questions that need to be answered:
- How intensely are the effects of a stronger pound being felt?
- Are the levels of business investment weak enough to prompt additional concerns over the UK’s current account deficit?
- Can the Bank of England hike before the Federal Reserve?
We doubt that these will be answered definitively on Thursday but they will be the major questions for the Bank of England as we head into 2016.
In the meantime we have to remain constructive for the pound against the euro in an environment of a European Central Bank likely to increase its stimulus as early as next month.