“The Bank of England thinks inflation will average 0.3% in 2015 versus 0.6% expected in May, although it is expected to reach 2.0% in two years’ time and the Bank pointed out that real wage pressures are building,” he commented.
The big challenge, he believes, is that with 10-year gilts sub 2%, where can fixed income investors generate returns?
He explained: “Two themes will help investors navigate the coming months. Firstly, a global remit. The next move in UK rates is up, but many central banks around the world such as the European Central Bank and the Bank of Japan are still easing monetary policy.
“Secondly, investors should look towards credit. Balance sheets look robust, earnings are healthy and credit spreads have widened over the summer to present investors with more attractive entry points.”
For those seeking a rapid change in Bank policy, last Thursday was always going to be a disappointment. As I have argued previously, with central banks adopting more transparency and taking on a more considered approach to forward guidance, the chances of shocks are greatly diminished.
Still, Carney has at least succeeded in making us engage more with the Bank’s thinking, even if what it actually says is not newsworthy. That excitement will come later…
