Bank of England’s Monetary Policy Statement (11th May 2017).

Weaker consumption in Q1
“Aggregate demand slowed markedly in 2017 Q1…The slowdown appears to be concentrated in consumer-facing sectors, partly reflecting the impact of sterling’s past depreciation on household income and spending….consumption growth will be slower in the near term than previously anticipated before recovering in the latter part of the forecast period as real income picks up.”
Improved global outlook
“The outlook for global activity continues to improve.  Business surveys and Bank Agents’ reports imply that business investment growth is likely to be higher in 2017 than previously projected. The stronger global outlook and the level of sterling are providing incentives for many exporters to renew and increase capacity.”¨
Inflation has risen above target
“CPI inflation has risen above the MPC’s 2% target as the depreciation of sterling has begun to feed through to consumer prices….The MPC expects inflation to rise further above the target in the coming months, peaking a little below 3% in the fourth quarter.”
There will be consequences to Brexit
“Monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years”
A smooth Brexit will help in achieving targets
“In the final year of the forecast, however, the output gap closes and inflation rises slightly further above the target. This is conditioned on the assumptions that the adjustment to the United Kingdom’s new relationship with the European Union is smooth, and that Bank Rate follows the market-implied path for interest rates.”
http://www.bankofengland.co.uk/publications/Pages/news/2017/003.aspx

Miscellaneous Quotes from week to 10th February

ECB President Mario Draghi on CBS news and News Talk

No need to relax regulations

“Frankly, I don’t see any reason to relax the current regulatory stance which has produced a much, much stronger banking — and, generally, financial services — industry than we used to have before the crisis. The idea of repeating the conditions of before the [global financial] crisis is very worrisome. If we were to look at historical experience and ask what are the main reasons for the financial crisis starting in 2007 onwards, well, one can disagree [over] whether it was too expansive monetary policy or the dismantling of financial regulation in previous years – but surely we can agree it was a combination.”

 

Alibaba CEO Jack Ma on Business Insider

Trade is important

“If trade stops, war starts…We have to actively prove that trade helps people to communicate. And we should have fair trade, transparent trade, inclusive trade.”

 

Bank of England governor Mark Carney on the Independent 

Central banks´ time is up

“In many respects we’re coming to the last seconds of central bankers’ fifteen minutes of fame which is a good thing… In general it’s a much better balance than the only game in town being central banks and monetary policy. This is positive,”

Bank of England Monetary Policy Statement December 2016

A unanimous decision to maintain the status quo

“…the Committee voted unanimously to maintain Bank Rate at 0.25%. The Committee voted unanimously to continue with the programme of sterling non-financial investment-grade corporate bond purchases totalling up to £10 billion, financed by the issuance of central bank reserves. The Committee also voted unanimously to continue with the programme of £60 billion of UK government bond purchases to take the total stock of these purchases to £435 billion, financed by the issuance of central bank reserves”

Increase in Long-term interest rates with a fragile global outlook

“Since November, long-term interest rates have risen internationally, including in the United Kingdom.  In part, this reflects expectations of looser fiscal policy in the United States which, if it materialises, will help to underpin the slightly greater momentum in the global economy evident in a range of data since the summer.  At the same time, however, the global outlook has become more fragile, with risks in China, the euro area and some emerging markets, and an increase in policy uncertainty.”

They are ready to respond up or down with monetary policy direction

“Earlier in the year, the Committee noted that the path of monetary policy following the referendum on EU membership would depend on the evolution of the prospects for demand, supply, the exchange rate, and therefore inflation.  This remains the case.  Monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target.”

Rising inflationary expectations

“Twelve-month CPI inflation stood at 1.2% in November, up from 0.9% in October and 1.0% in September.  Looking forward, the MPC expects inflation to rise to the 2% target within six months.”

Bank of England´s (BoE) Monetary Policy Summary September 2016

Unanimous support for current monetary policy to continue

“…the MPC voted unanimously to maintain Bank Rate at 0.25%.  The Committee voted unanimously to continue with the programme of sterling non-financial investment-grade corporate bond purchases totalling up to £10 billion, financed by the issuance of central bank reserves.  The Committee also voted unanimously to continue with the programme of £60 billion of UK government bond purchases to take the total stock of these purchases to £435 billion, financed by the issuance of central bank reserves.”

The initial impact of the measures undertaken in August

“The package of measures announced by the Committee at its August meeting led to a greater than anticipated boost to UK asset prices.  Short and long-term market interest rates fell notably following the announcement; corporate bond spreads narrowed, and issuance was strong; and equity prices rose.  Since then, some of the falls in yields have reversed, driven by somewhat stronger-than-expected UK data and a generalised rise in global yields.”

The outlook for H2 2016

“The Committee now expect less of a slowing in UK GDP growth in the second half of 2016.”

There is room for further cuts of rates to a little above zero

“The Committee will assess that news, along with other forthcoming indicators, during its November forecast round.  If, in light of that full updated assessment, the outlook at that time is judged to be broadly consistent with the August Inflation Report projections, a majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of this year.  The MPC currently judges this bound to be close to, but a little above, zero.”

BOE Agents’ summary of business conditions August 2016

Brexit will affect certain aspects of the economy negatively

“Overall, respondents expected a negative effect from the vote on turnover, capital spending and hiring activity over the next twelve months…Across sectors, the expected effects on turnover were most negative for business services and construction.”

Softer business services

“Business services turnover growth had softened further, partly reflecting weakness in commercial property investment and other corporate transactions, such as merger and acquisitions activity…Activity in the commercial real estate sector had been materially affected by the referendum result, with the investment market in London particularly weak. Occupier demand had held up better.”

Slower growth in consumer spending

“Annual consumer spending growth had eased further, with unseasonal weather likely to have been a significant factor. Consumer caution had increased prior to and since the referendum, reducing demand growth for larger-value goods.”

The depreciating GBP has been a boon to manufacturing export volumes

 

“…for manufacturing there was a slight positive effect on balance, reflecting an expected boost to export demand from the fall in sterling. But exports overall were expected to be broadly unaffected, as that positive effect was offset by an adverse impact on services exports associated with lower commercial real estate and mergers activity by overseas investors.”

Bank of England (BoE) Agents’ summary of business conditions

Intelligence report on businesses and consumer actions post-referendum

(http://www.bankofengland.co.uk/publications/Documents/agentssummary/2016/jul.pdf)

Little to moderate change in annual rate of activity growth

“The annual rate of activity growth had remained moderate and little changed in the month up to the EU referendum. Consumer spending and construction output growth had eased a little, offset by a pickup in manufacturing growth from a low base. There had been further signs of uncertainty leading to delays in decision-taking, including on capital spending, hiring and property investment.”

Businesses weren’t prepared for the Brexit

“Many contacts planned to undertake strategic reviews of their operations over the coming months in light of the vote. For many, the result of the referendum was a shock; few had contingency plans and so for the time being were in a mode of seeking to maintain ‘business as usual’.”

Companies considering location changes and postponing FDIs

“As yet, there were few suggestions of disinvestment, such as exiting the United Kingdom in the near term, but there were a few reports of planned foreign direct inward investment being postponed. A number of companies were considering alternative European locations for aspects of their business, and some contacts within large international firms expected their continental European operations to receive a greater share of future investment than their UK ones.”

A ´risk off´ approach in the near term for firms

“The outlook for investment was uncertain. The majority of firms spoken with did not expect a near-term impact from the referendum result on their capital spending. But around one third expected some negative effects over the next twelve months, with reports of a ‘risk off’ approach to

expenditures and some imminent plans for spending slipping.”

Consumers are hesitant on higher value purchases

“There had been little evidence of any impact on consumer spending on services and non-durable goods, although there were some reports of consumers becoming more hesitant around purchases of higher-value goods.”

Companies expect to reduce hiring activity

“As yet, there had been few reports of major alterations to businesses’ employment intentions. But the vote to leave was expected to have a negative effect overall on hiring activity over the coming twelve months.”

Prices expected to rise but may not be passed to consumers

“Companies’ prices were likely to increase, as the fall in sterling passed through to higher import costs …Given intense competition, retailers reported seeking to minimise increases in consumer prices, with a view to protecting their market share. But in some services, such as catering, there were expectations that prices could rise relatively quickly.”

Lending unaffected, demand for credit easing.

“But the early evidence indicated that banks’ appetite to lend had been maintained following the referendum decision. There were reports that demand for credit was easing alongside lower expectations for investment spending.”