The Bank of England kept policy unchanged on Thursday, as expected. It was a split decision, also as expected, with two votes for a cut, the same as the last meeting.
The BOE has, for years, been faced with the wholly unenviable task of trying to game out what various manifestations of Brexit might mean for the economy, an endeavor complicated at every turn by the “in flux” nature of hopelessly fraught negotiations with Brussels and incessant political upheaval.
Thursday’s decision was generally seen as more hawkish than expected given a reference to a prospective future hike in the event things don’t go totally off the rails. “Further ahead, provided… risks do not materialise and the economy recovers broadly in line with the MPC’s latest projections, some modest tightening of policy, at a gradual pace and to a limited extent, may be needed to maintain inflation sustainably at the target”, the bank said.
Of course, that came after the obligatory reference to monetary policy’s readiness to respond in the event the outlook darkens anew, as it did this week when Boris Johnson effectively put a no-deal Brexit back on the table, halting the pound’s post-election surge (bottom pane in the visual).
Sterling rose for the first time in three days against the dollar on Thursday, although the gains could be ephemeral.
BOE dovishness is tempered by the likelihood of fiscal stimulus, the assumption of a generally smooth Brexit and the abatement of global uncertainty around the trade war. On the former point, the Mail reported on Wednesday evening that Boris will cut business rates for half a million independent shops, with discounts ranging from 33% to 50%. The cost: more than £300 million. Tory sources said the tax breaks could be worth £12,500 for small businesses.
Boris will, of course, have to pick a replacement for Mark Carney soon. Some call the list of candidates “unimpressive”, although we would note that in the event of a Senate shocker next month, Donald Trump may be looking for a new job. Johnson may make a decision as soon as this week.
As an amusing aside, the Times said Wednesday that the BOE’s backup audio feed was effectively hacked, allowing a third-party supplier to pipe information to HFTs, apparently.
“Hedge funds have been eavesdropping on the Bank of England’s press conferences before they are officially broadcast after its internal systems were hijacked”, the Times reported. “The Bank has discovered that one of its suppliers has been sending an audio feed of its press conferences to high-speed traders who hope to profit by acting on the governor’s comments before the rest of the world”.
That third-party is now banned from press conferences. “This wholly unacceptable use of the audio feed was without the bank’s knowledge or consent”, the BOE said. “On identifying this, the bank immediately disabled the third party supplier’s access.”