Heartbreaking:
Once again, the number wasn’t right, which is bad news if you’re one of those unfortunate City economists:
Good news if you’re relying on the economic illiteracy of the population to maintain a job you show few signs of actually wanting:
And good news if you were substantially more wrong than the average City economist on the headline figure but your Random Hawkish Number Generator happened to almost nail services inflation:
Everyone can go celebrate or lick their wounds in preparation for the next monthly round of the credibility game. Of course, FTAV was cautious going into today’s print, because, like Andrew Sentance, we closely watch the real economy rather than relying on flawed models and econometrics.
There’s probably a post in assessing whether UK economic forecasting will ever recover from Samuel Tombs going Stateside, but in the meantime we actually don’t want to talk about CPI at all — the whole top of this article was just a bait-and-switch to launder four other interesting Bank of England things that we haven’t manage to turn into posts. No, come back!
1) Do we need to hear more from Andrew Bailey?
MainFT yesterday:
The UK government lacks scope for new tax cuts and will struggle to contain spending growth, the IMF has said, as it warned of a near £30bn gap in the public finances.
In its annual health check on the UK economy, the fund predicted that the UK will break its fiscal goals late in the decade due to more health spending and public investment.
We’re guessing many readers will have missed the full IMF recommendations, and wanted to highlight this one (under point 4), which went unmentioned by the paper:
Monetary policy should, of course, continue to closely monitor and be informed by incoming data, especially on inflation and the labor market in the next few weeks, as well as the outlook on risks, and adjust as needed. In this context, the MPC’s current “meeting-by-meeting” approach, including to evaluate the accumulation of evidence on persistent inflationary pressure, is appropriate. Moreover, possible divergence from the US Fed’s rate path will place a premium on effective MPC communication with markets. Staff sees merit in a press conference after each MPC decision, akin to the approach taken by other major central banks.
Reuters reported last night:
Bank of England Governor Andrew Bailey said on Tuesday that the central bank would consider a proposal by the International Monetary Fund that it should hold a press conference after each of its Monetary Policy Committee meetings.
“More press conferences? What a great thing, more press conferences! I can’t wait,” Bailey said when asked about the IMF proposal.
IMF Managing Director Kristalina Georgieva said earlier on Tuesday that the BoE had said it would consider “very carefully” the Fund’s suggestion that it should hold a press conference after each rate-setting meeting, rather than four times a year.
“We will roll that question that the IMF have given to us into our thinking about implementing Ben Bernanke’s changes,” Bailey added, referring to recent suggestions for change at the BoE made by the former Federal Reserve chief.
Should Bailey be communicating more? Let us know, as ever, via comment or email.
2) QT latest
So, uh, here’s more from Bailey. The Governor’s comments above followed a somewhat interesting speech, ‘The importance of central bank reserves’, in which he loosely foreshadowed the looming decline of the Bank of England’s asset pile into lenders’ “Preferred Minimum Range of Reserves”, which he revealed is currently assessed to be £345bn-£490bn:
Quantitative tightening procedure enthusiasts…
. . . will note that a lot of that leg down is coming from the passive roll-off of maturing gilts (the orange line), with only a small contribution from active selling (the teal line).
We wrote about this last September: depending on where you judge the appropriate level of Bank reserves to be, ‘active’ QT may be marginal at best, or at worst unhelpful. Bailey’s speech chiefly deals with this question, which is a mixture of practical (will reserve scarcity cause market functioning issues) and philosophical (should lenders be being weaned off interest-bearing reserves).
But what to do about active QT? The MPC has ordained winding the Asset Purchase Facility down by £100bn this year. In the upcoming year, £87bn will come from passive roll-off alone, meaning just £13bn of active sales are needed to reach the target.
Bank of America reckon that, as a result, the BoE will consider (potentially temporarily) canning active QT:
With “passive” QT falling back towards £50bn after the 2024/25 “QT year” and staying around £30bn in years 2026/27 to 2029/30 (Exhibit 5), “active” Gilt sales could return in the not-so-distant future were the BoE keen to persevere with slightly lower QT pace.
Whereas Pantheon Macroeconomics’ Elliott Jordan-Doak reckons it’s too marginal to bother even stopping:
We can see little point in stopping active sales to reduce the pace of QT only marginally. This would not be consistent with QT “running in the background” and would make little difference to the gilt market. But stopping active sales soon would make it harder to restart them in subsequent years when the redemption profile could be lower.
Whatever happens, don’t say we didn’t warn you. What do you think the BoE should do? Let us know, as ever, via comment or email.
3) Transparency latest
The IMF also has some recommendations about future QE/QT plans, saying (our emphasis):
While this is still an evolving issue for many central banks implementing QT, staff suggests some high-level principles for capital policies governing future QE/QT rounds: (i) the treatment of profits/losses should be fully transparent, ex-ante, and symmetric (as is currently the case); (ii) the size and frequency of transfers between the Treasury and the BoE arising as a result of QE/QT profits/losses should be reduced, to insulate the BoE from any political pressure associated with the fiscal implications of the transfers; and (iii) the profits/losses should be included in the debt definition used for the fiscal rule, as is currently the case, but there would be a case to exclude the profits/losses from any annually-applying deficit rule.
We imagine the government will just, you know, ignore this, but it remains pretty wild that the deed of indemnity underpinning the entire UK QE/QT process is still not in the public domain.
Do you agree? Let us know, as ever, via comment or email.
4) Dove crying latest
Bloomberg economist Niraj Shah wrote and charted yesterday:
It’s a powerful signal when a deputy governor of the Bank of England dissents in favour of a rate cut. More so when it’s Dave Ramsden given his previous form in pivoting the Monetary Policy Committee. A look at past easing cycles indicates that, on average, the majority tend to back the dissenting deputy governor one meeting after. Assuming no nasty data surprises, that’s another observation that supports our call for easing to start in June.
Obviously, the nasty data surprise has now landed, and it looks a lot like Deputy Dove may not be destined for heuristic status:
We‘re honestly sceptical that close analysis of MPC voting patterns produce much more than trivia, but it did get us thinking about a way to calculate the “Most vindicated MPC member of all time”, as at least one reader suggested following our latest awful post in that genre:
We don’t think there is a fair way to do this, for the following major reasons:
— Rebelling X meetings before everyone else pivots in the same direction doesn’t mean the rebel was “right”, early can be the same as wrong
— Any system that involves saying “Y went dove and within X months/meetings, the whole MPC had also gone dove” produces radically different results based on X
— Wrongness and rightness become impossible to quantify when the metric is something like “should the UK have maintained such low interest rates through the 2010s”?
Do you think those are spurious excuses and would like us to try anyway? Let us know via comment or email.
