There has been a lot of chatter from central banks across developed markets about “normalising” and finally putting an end to years of quantitative easing.
But, save for the Federal Reserve’s move to raise rates last month, little headway has been made from the BoE, European Central Bank or the Bank of Japan.
In fact, over the last several months, the tone at the BoE seems to have shifted in the other direction, since its surprisingly close call to halt rates in June.
Despite murmurings from BoE governor Mark Carney that a rate raise could be on the horizon, the odds of one happening are now vastly reduced, with interest rate markets giving a hike a one in 20 shot chance of happening.
And following the departure of lead hawk Kristin Forbes from the Monetary Policy Committee at the end of June, a surprise rate hike seems like an even more distant possibility.
As Hargreaves Lansdown senior analyst Laith Khalaf notes, not much is known about Forbes’ replacement, Silvana Tenreyro, nor her voting proclivities.
But he thinks it is reasonable to assume “she won’t want to rock the boat by voting for a rate rise in her first outing”.
Of the other seven members of the MPC “five have never voted for a rate rise,” he added.
In light of softer second quarter economic data, analysts are also unified in their prediction of a “no” verdict from the bank this August.
“No rate hike,” proclaimed Bank of America Merrill Lynch’s UK economists and rate strategists in a note distributed the afternoon before the vote.
Predicting a 6-2 vote to keep rates on hold at the BoE’s August policy meeting, BAML UK economist Robert Wood explained that sub-par economic data over the second quarter means the verdict from Britain’s central bank will likely be more of the same “wait and see”.
“Inflation should peak soon, there are no second round effects and manufacturing surveys left the realms of reality some time ago; manufacturing output is flat as a pancake like retail sales so GDP growth is weak,” he said.
“The underlying message from the BoE will be, we think, that market pricing is fine, rates could rise if all goes well, but we are going to wait and see.”
As for sterling, “were the meeting to have been held in early July, we think it would have had more impact for GBP given rising rate hike expectations then”.
Meanwhile, many in the investment industry, particularly the fixed income space, are growing increasingly impatient with the central bank’s indecisiveness.
M&G bond manager Richard Woolnough argued that the bank’s aggressive emergency measures were no longer needed and it is high time the bank sold down its £10bn stockpile of corporate bonds.
Director of investment at PFP Wealth Management Tim Price called the BoE the real public enemy number one.
But is this criticism of the BoE’s better to be safe than sorry attitude warranted?
Thomas Miller Investment’s chief investment officer, Abi Oladimeji, thinks not.
