I don’t know about the rest of you, but I am none the wiser after this most recent ‘Inflation Report.’ Governor Carney was smoother than silk and was careful not to be specific about anything. If the movement in the Pound and bank share prices was anything to go by, we should not hold our breath and expect any early rate rise. The Pound dropped from $1.6808 to $1.6725 (-0.52%) and bank shares rallied by over 1%, suggesting any rate rise could be futuristic! I stand alone or in a minority in thinking there will NOT be a 25 basis point increase in November. Despite reassurance from Messrs Carney & Broadbent that the slack is disappearing at a greater rate than had been expected by about 1%, the wage data looks anaemic and is hard to reconcile with a rate increase or increases.

With the ONS suggesting that productivity had been disappointing in 2014 and confirming that wages had fallen in the last year, despite 800k jobs having been created in the last year, with unemployment falling 132k to 2.08 million (rate 6.4% from 6.5%), how can rates be put up? The consumer would have less disposable income, as they attempt to service debt at a higher rate, giving them less disposable income to spend on retail – the backbone of growth. Many present were also alarmed that the BOE’S MPC had dropped its estimate for wage increases for the 4th quarter from 2.5% to 1.25%. Against that economic climate, one could be forgiven for feeling cynical. There was a sweetener from the Governor suggesting unemployment would fall to 6% by the end of the year and maybe get down to 5.5% next year. Minouche Shafik, another new deputy governor endorsed Mr Carney’s concerns that the EU and other geopolitical problems were of concern to the Bank. Other new board members and committee appointees – Kristin Forbes and Sir John Cunliffe – were not there this morning to be introduced by Jenny Scott.

What was frustrating for all who listened was there were NO CLEAR SIGNALS – just best endeavours! FORWARD GUIDANCE rules OK – the culture has not changed and never will. So at the end of the day few have any idea when rates will go up. They will go up slowly and in a measured manner with the zenith likely to be 2.25% in 2017. The cocktail to deliver higher rates is growth, inflation, wage growth, employment and productivity!

These are David Buik personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
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