One of the features of the credit crunch era is the way that those in authority so often get given pretty much a free pass from the media, This is illustrated starkly by the BBC’s senior economics correspondent Dharshini David.
Today the Bank of England’s Governor admitted to me that rates are likely to rise faster than the markets expect. So when can we expect the first move? My analysis for
Perhaps Dharshini was giddy after being given the first question at the press conference. Sadly she asked a question which might have been written by Governor Carney himself and accordingly he seemed like Roger Federer as he volleyed it nonchalantly at the net.
Missing is any questioning of the assertion such as pointing out Governor Carney told us that interest-rates would rise “sooner than markets expect” in his Mansion House speech in June 2014. When this did not happen he acquired this moniker.
The Bank of England has acted like an “unreliable boyfriend” in hints over interest rate rises, according to MP Pat McFadden. ( BBC)
The reality was that his next move was to cut interest-rates In August 2016 followed by promises of another cut that November before yet another U-Turn. Then there was another U-Turn just over a year ago which if you recall was followed by a sharp drop in the value of the Pound £.
So you can see that it is really rather extraordinary that Dharshini either ignored or is unaware of this. I am not sure what to make of the sentence below.
But that doesn’t mean that Mark Carney or his colleagues are asleep at the wheel.
She was nearer the mark with this.
Report press conference was perhaps unprecedented number of female hacks… taken a while but face of financial journalism is changing, all the better to reflect our audiences
However there was no mention of the “woman overboard” problem at the Bank of England which was illustrated by the 100% middle-aged male make up of its panel. The press conference highlighted this as in response to a question about diversity at the Bank of England Governor Carney responded with a barrage of “ums” and “ers”.
Still we can have a wry smile at this.
Growth actually isn’t that different to what was expected a year ago……..UK growth in the first quarter is likely to have been 0.5%, double what the Bank expected just three months ago.
Governor Carney kept pointing to the former forecast as he had a rare opportunity to bathe in a correct forecast, although he was not challenged on why they then cut the growth forecast to 0.2% so recently?
In response to a rather good question about the growth of fixed-rate mortgages and its effect on the responsiveness of the economy to Bank Rate changes the Governor claimed this was nothing to do with him. Nobody pointed out that in his first phase of Forward Guidance promising interest-rate increases there were people who were listening to him as there was a shift towards foxed-rate mortgages. Sadly, they were then shafted when Governor Carney cut interest-rates.
The point above was in a way the media catching up with one of my earliest themes from 2010 as I pointed out how market interest-rates were following official ones much less closely than before. However there was an even bigger humdinger out of Governor Carney’s mouth.
This is not a debt fuelled expansion
He has said this before and there are two main issues with this. The first is that the main policy over his tenure has been the funding for lending scheme which turned net mortgage lending positive. So more debt as shown by Wednesday’s figures.
Net lending for mortgages increased to £4.1 billion in March.
In the month before Governor Carney’s arrival the net increase was £785 million and whilst the rise has not been smooth ( early 2016 saw an incredible surge due to the buy to let changes) I think the numbers speak for themselves
Also the past three years or so has seen quite an extraordinary surge in unsecured credit something which I have been regularly documenting. It was £156.4 billion and is now around 38% higher at £216.7 billion. Can anybody think of anything else that has risen that fast as wage growth and GDP have been left far behind?
A factor in this has been something we have followed closely and was highlighted by the Office of Budget Responsibility.
Data from the Finance & Leasing Association suggest that, between 2012 and 2016, dealership car finance contributed around three-fifths of the growth in total net consumer credit flows. Within that, around four-fifths reflected strong growth in car sales, with the remainder accounted for by a higher proportion of cars bought using dealership car finance.
So “this is not a debt fuelled recovery” means we have pumped up mortgage lending and seen quite a surge in car finance.
Sadly for those who parroted the Bank of England line there was this. From @NicTrades
Bank of England Carney signals more than 1 hike may be needed to keep inflation in Check, while at the same time he cuts inflation forecasts.
Thus according to its inflation targeting regime an interest-rate increase is less and not more likely. Even worse the absent-minded professor Ben Broadbent gave us quite a spiel on oil markets as he tried to look on the ball, but to anyone market savvy that will have backfired too as they will have been thinking that the oil price has been falling recently. The price of a barrel of Brent Crude Oil is as I type this nearly US $5 lower since President Trump indulged in his own open mouth operation on Twitter last Friday.
The era of Forward Guidance has turned out to be anything but for the Bank of England. Governor Carney seems to have set the boy who cried wolf as his role model and the fact that he has actively misled people gets mostly overlooked. Still let us hope he is right that UK GDP grew by 0.5% in the first quarter of this year. If true that will also pose a question for the Markit series of business surveys.
At 50.9 in April, up from 50.0 in March, the seasonally
adjusted All Sector Output Index revealed a return to growth for private sector business activity.
Meanwhile our supposed football fan missed an opportunity that was taken by the ECB.
Perhaps I am more sensitive on that front as I am a Chelsea fan, but Arsenal fans may wonder too.