nsucurrent.com
nsucurrent.com August 21, 2017


Goldman Sachs on the Bank of England & Haldanes "dovish tilt"

06 August 2017, 12:49 | Colleen Roy

It looks like being a lazy summer for the Bank of England

BRITAIN-ECONOMY-BOE-STRIKE

The central bank boss said rates are likely to begin to rise as the economic outlook improves. It also downgraded expectations for 2018 from 1.7% to 1.6%.

Commenting on today's interest rate decision and inflation report by the Bank of England's Monetary Policy Committee, Dr Adam Marshall, Director General at the British Chambers of Commerce (BCC), said: "The Bank of England's decision to keep interest rates unchanged is unsurprising, and reflects the more subdued levels of growth we have seen in United Kingdom business communities over recent months".

"The market hadn't priced in much possibility of a hike this month but the 6-2 vote was a bit of a dovish surprise for us", said Yujiro Goto, an analyst at Nomura, one of the only banks that had been calling for a rate hike this month. Meanwhile, the Pound US Dollar exchange rate was trending lower at 1.3158.

The Bank of England has cut its economic growth forecast for this year and next, warning that households will see a fall in their real take-home pay this year and that output growth will remain below its normal expansion rate for some years.

It is unlikely more rate-setters will join dissenters in voting for a hike, although there have been signs of a growing split on the MPC.

In its latest report, the National Institute of Economic and Social Research (NIESR) predicted the Bank would raise rates in the first quarter of next year as the economy starts to recover. "The immediate threat of higher interest rates (which would, in turn, bring sterling strength) has passed, allowing United Kingdom exporters to continue to use their exchange rate-induced price advantage when selling overseas".

That's down from three votes for a rise at the last meeting, with Kristin Forbes, who voted for a rise in June, having left the MPC.




'Monetary policy can not prevent either the necessary real adjustment as the United Kingdom moves towards its new global trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years.

The decision comes a year after rates were cut to 0.25% last August following the Brexit vote.

In its last set of minutes the Bank said that its forecasts were "conditioned on the assumption that the adjustment to the UK's new relationship with the European Union is smooth", but this time it said that the "projections assume that, in the interim, households and companies base their decisions on the expectation of a smooth adjustment".

Fabrice Montagne, chief United Kingdom and senior European economist at Barclays, said: "We expect the Bank of England to downgrade its forecast in order to reflect disappointing data".

Underlying the squeeze on households from inflation, real wages will fall by 0.5 per cent this year, according to BOE's new forecast.

He points out that savers have not only seen little to zero gains on their cash, but also an uptick in inflation, which hit a four-year high of 2.9 per cent in May and is expected to peak to 3 per cent in October.

GBP/USD still sits comfortably above the 1.31 mark, which will grant some reprieve to those looking to sell the pound (the pair sits a solid 10% above the post-referendum lows of 1.20), but the same can't be said for euro buyers - a solid break below 1.10 in GBP/EUR will mark the lowest rate since 2009.



Other News

Trending Now

Eye-Tracking Support Headed to Windows 10
Microsoft has released many such updates, including three major ones: November Update , Anniversary Update , and Creators Update . While Eye Control sounds like a fun new way to operate your laptop, Microsoft is positioning it as a more important tool.

Charlie Gard Judge Has Given Parents and the Opposition a Deadline
He issued an order barring publication of the name of the hospice and the date when Charlie is taken there. Charlie Gard at Great Ormond Street Hospital in London .

Tillerson calls on Russian Federation to improve USA relations
Corker had earlier objected to including the North Korean sanctions, initially favoring to address that issue in a separate bill. Goods produced by North Korea's forced labour would be prohibited from entering the United States, according to the bill.

European Union concerned over USA bill on Russian Federation sanctions
They would be America's toughest sanctions against Russian Federation since the Ukraine conflict broke out in 2014. The president is also asked to decide on sanctions "in coordination with the allies of the United States".

NFL Preseason Gambling: Dallas Cowboys a short favorite over Arizona Cardinals
On Tuesday, Cardinals Coach Bruce Arians announced that not one of his starters will take the field Thursday in Canton, Ohio. Although, fans won't be seeing the likes of Dak Prescott , Dez Bryant , David Johnson or Larry Fitzgerald .

Trump replaces chief of staff Priebus with general Kelly
Priebus said in a statement that it was one of the greatest honours of his life to serve the U.S. president and the country. Press secretary Sean Spicer quit after the appointment of Mr Scaramucci , warningover "too many cooks in the kitchen".

EU 'vigilant' on new US sanctions on Russia
Notably, the new legislation includes restrictive measures against Russian private individuals and separate economic sectors. Embassy spokeswoman Maria Olson could not immediately say how many people had to leave to meet Russia's new requirements.

Iran Says US Navy Vessel Fired Warning Shots
But serious differences remain over Iran's ballistic missile programme and conflicts in Syria and Iraq. Navy fired warning shots near Iran ship in Persian Gulf.

Attackers target Shiite mosque in Afghanistan's Herat
He said at least 25 others who sustained injuries in the attack were also shifted to the hospital for the treatment. A security source, who declined to be named, said IS could prove to be more risky than the Taliban in Afghanistan .

HTC VIVE(TM) Announces a Premium Standalone VR Headset for the China Market
We do know that the Chinese version lacks the Google WorldSense tech that the standalone coming to the United States will boast. For another, these VR headsets keep us tethered to desks or, at the very least, laptops.