This morning if you had been up early around Threadneedle Street in the City of London you may have passed a very happy looking research student. He or she was getting ready to boost their career by telling the Governor of the Bank of England that house prices have risen.
October saw a slight rise in the rate of annual house price growth to 2.4%, from 2.2% in September. Prices increased by 0.3% month on month, after taking account of seasonal effects. ( Nationwide)
Probably not enough for there to be three cheers for the Governor but maybe he might wave in the manner of Noel Coward as the prisoners cheered in the film The Italian Job. No doubt there will be a rush to point out that he has handled the period of higher Bank Rates magnificently.
The housing market has remained broadly stable in recent months, with house prices rising at a modest pace and the number of mortgages approved for house purchase maintained at similar levels to those prevailing before the pandemic struck.
“Against a backdrop of subdued consumer confidence and signs of weakening in the labour market, this performance indicates resilience, especially since mortgage rates are more than double the level they were before Covid struck and house prices are close to all time highs. “
No danger of any group think here as everyone independently comes to the same conclusion which is that higher house prices are just the ticket. There may also be time to remind everyone of a great success from a week ago.
Afua Kyei, the Bank of England’s chief financial officer, has been named the UK’s most influential black person.
The 43-year-oldis one of the UK’s most senior finance leaders, in charge of the financial governance of the Bank’s £1 trillion balance sheet and funding reforms. ( BBC)
After all you never know when you might need a chemist.
Kyei studied chemistry at Oxford University and was also awarded a junior research fellowship by Princeton University in organic chemistry.
And to be fair the policies adopted by the Bank of England show that it is full of people like this.
“You don’t need to be a mathematician, you don’t need to be an accountant and you don’t need to be an economist. What we’re looking for is fresh perspectives and we want the best people”.
Knowing what you are doing is so overrated…..
Balance Sheet Problems
Sadly the research student chosen to present the morning meeting yesterday lucked out. Even speaking at twice the normal speed in an attempt to rush past the issue was unlikely to work.
The Committee decided to conclude the reduction of its aggregate securities holdings on December 1. ( Federal Reserve)
Nothing upsets a central banker more than being at risk of outside the pack. It fills them with something worse than terror as their standard go to excuse is that everyone else is doing it. Thus when the leader of the pack makes a move like it has the eyes of the Governor of the Bank of England will search the room for whoever he considers responsible for this.
At this meeting, the MPC had voted to reduce the stock of UK government bond purchases held for monetary policy purposes by £70 billion over the 12-month period from October 2025 to September 2026.
So there are another ten months to go as yet another form of Forward Guidance proves to be as successful as all the others. Even a phone call to the Prime Minister of Canada who is a specialist in Forward Guidance failures is unlikely to help as apart from being busy demonstrating why he was called the Unreliable Boyfriend when in the UK he would rather forget the whole period. Even worse people are going to be reminded of this issue when these happen.
The details of the first quarter of the associated gilt sales programme, covering 2025 Q4, were set out in a Market Notice accompanying these minutes.
New offices in the crypt of the Bank of England will be found for those considered responsible for this and the worst part of this banishment is that it is a place where the Cake Trolley never ventures. No more fact finding trips to the central bank of the Bahamas or to Davos in the ski season.
Money Supply
This is an area where the “best people” have got themselves into rather a pickle. The “fresh perspective” of ignoring this area is in danger of singing along with The Who.
Meet the new boss,
same as the old boss.
Because as I have been pointing out for some time now money supply growth has been picking up.
The net flow of sterling money (known as M4ex) was £13.7 billion in September, compared to £11.2 billion in August. This was largely driven by households increasing their holdings of money by £7.9 billion in September, with households depositing an additional £5.8 billion into interest-bearing sight deposit accounts, £2.4 billion into ISAs, and £0.7 billion into non-interest-bearing accounts.
The monthly numbers always have an erratic element so my view is that you need to look at the trend. If you simply add the monthly growth for the last 4 months you get 1.5% which is an acceleration on the current annual rate of 4.4%.
Even if we stick with the present rate of 4.4% once we break that down we have a problem. If we project annual growth at 1% to 1.5% then we have around 3% of expected inflation two years ahead. That is awkward on two counts of which the first is that when inflation is already over 3% then anyone outside of the “best people” is likely to think a risk is being taken with inflation. The second problem is that interest-rates have been cut as the monetary system has been heating up.
That is before you make an allowance for the fact that the QT or balance sheet reduction will be depressing that monetary growth.
Comment
These are difficult times to steer a modern economy. This morning has provided another example as the Office for National Statistics has produced an incoherent word salad to describe its revisions to GDP. But there is one area where it completely misled everyone including the Bank of England.
One feature of the pandemic was the impact on the household saving ratio, including the concept of forced savings.
Regular readers will recall this period which has lots of implications except now we are told this.
Figure 4: Consecutive Blue Books have incorporated downward revisions to the household saving ratio since the end of 2021
Revisions are in general a good thing as more information is always a gain. But looking at the details we were told the Savings Ratio was of the order of 8% in 2022 and now we are told it was 5%. The error is so large I think it might be best to suspend this series until we can do a lot better.
So on this front I have some sympathy with the Bank of England but its problem is that it too keeps making basic errors.
