Today the focus is back on the Bank of England after the appearance of four of its policymakers in front of the Treasury Select Committee yesterday. They will be setting interest-rates next week so there is much to consider. They are likely to be doing so after an interest-rate cut of 0.25% in the United States as that is what I am expecting later today. However like the Bank of England the Federal Reserve is split and thus dissenters are likely as there were two last time. As there are twelve members there was a period a 6-6 vote was possible but I think we will see a cut tonight.
Deputy Governor Lombardelli
There was particular significance in her words as she is an internal member who previously worked for HM Treasury and last time around she voted for interest-rates to stay at 4%.
LONDON, Dec 9 (Reuters) – Bank of England Deputy Governor Clare Lombardelli said she was worried about upside risks for British inflation and the central bank should move more slowly to lower borrowing costs as it approaches the end of its interest rate-cutting cycle.
“I am very worried that we are seeing more pressure on resources in the economy, and that obviously leads to price rises. I think you can see it in the labour market,” she told lawmakers on the Treasury Select Committee on Tuesday.
The second paragraph in particular there suggests that she is planning to vote for 4% again. This is all rather similar to her annual report to Parliament from September.
At the time of the August decision headline inflation was 3.6% and it is expected to remain roughly between 3.5 and 4.0% for the remainder of this year. This is driven in part by inflation in food and energy – the most salient prices – and comes after a long period of relatively high inflation. This increases the risk of an inflation persistence scenario such as the one we considered in May.
As inflation is 3.6% again by the latest measure then she seems to be heading for another vote to keep interest-rates at 4%, a feeling which she further reinforced yesterday with this.
“I am also perhaps less convinced than others (on the Monetary Policy Committee) about how restrictive monetary policy is at the moment, as in how far we are from reaching the end of the cutting cycle.”
Lombardelli said that as the BoE approaches the end of its run of rate cuts “and you don’t know where it is, you might slow down a bit to try and anticipate and find your way a bit more.” ( Reuters)
Catherine Mann
Dr.Mann is the wildcard or loose cannon at the Bank of England. As her written evidence yesterday demonstrated.
Over the past year, trade-off management in the context of cross-border financial spillovers has been uppermost in my decision-making.
Pardon?!
But if we look for the specific we see more potential confusion. At first things seem relatively clear.
On the inflation front, as discussed above, I have been skeptical that headline CPI inflation will decelerate so quickly and sustainably to the 2% target by mid-2027 as outlined in the November Monetary Policy Report.
But there was also scope for a hard swerve if you looked further.
I am paying very close attention to the Decision Maker Panel survey and Agents’ assessments of the labor market (which both say is weak), at redundancies (which have ticked up a bit), at business cash positions (based on staff analysis with Experian data), and at insolvencies. Last February, as discussed above, these were key to my vote to cut, but the data did not, over the course of the year, meet those harsh predictions.
Apparently she has learnt nothing at all from the way she made a fool of herself in February. and on the 11th of that month I used her words below.
Along the way, I will discuss the disaggregated data that underpin my assessment of current and prospective economic and financial conditions which led me to vote for an ‘activist’ 50 basis point cut,
So she had gone for previously voting for interest-rates to go to 5.5% to then leading the charge for cuts! Whilst she now admits that she was wrong having performed yet another U-Turn she continues to prefer her Ivory Tower theories to reality.. So we need to watch her closely in February.
Deputy Governor Ramsden
Dave who is known as Sir David to his friends is more clear cut I think.His written evidence shows this.
In the 16 MPC decisions from December 2023 to November 2025 I have voted in the minority five times; on each occasion I’ve voted for a 25bp cut against the majority decision to hold Bank Rate.
If we move from his pattern of behaiour to now we see this in his evidence.
Disinflation had become better established, and current and prospective slack should allow underlying inflation to return to target-consistent rates.
So he will vote for a cut. Along the way we see the way that the “Sir Daves” of the world distort language. His chart shows that UK inflation has risen which he describes not only as disinflation but tries to claim it is “better established.” He is a regular spreader of such nonsense as here her is from November 2024.
To conclude, my overall assessment is that the economy will continue to normalise, with the recent trend towards low and relatively stable inflation continuing……But given the uncertainties I think it is as least as likely that the disinflationary process sustains its recent trend,…..At our most recent meeting I voted with the majority on the MPC to reduce Bank Rate to 4.75%, reflecting the process of disinflation.
It might be his favourite word. The problem is that his chart this year not only shows it rising as it more than doubled from the lows and went well above target. Yet apparently this forecasting failure is a result of the Bernanke improvements.
The Bank’s work in response to the Bernanke review has proven very helpful in this regard, by setting out different, plausible, scenarios of the state of the UK economy.
Swati Dhingra
This is the easiest as she will vote to cut interest-rates.
Bond Yields
This has been an area of both theoretical and practical failure for the Bank of England. In a nutshell if you asked them where the UK ten-year yield might be with Bank Rate at 4% with cuts expected they would have been suggesting 3.55% rather than the present 4.55%. This reinforces their effort to be the worst bond traders in history as it is yet another year where their QE bond buying has piled up losses.What could go wrong with a group of bond market innocents buying £875 billion?
The UK Pound £
There is happier news here highlighted by the way it has moved over 208 Japanese Yen over the past 24 hours. Of course a weak Yen is an influence but in currency markets it takes two to tango. The currency has overall been quiet as the broad trade weighted or effective index is pretty close to where it was a year ago. In December 2024 it averaged 84.52 and on Monday it was 84.2. Of course things may move later depending on the Federal Reserve.
Comment
What all this means is that the interest-rate move of the Bank of England continues to be decided by Governor Andrew Bailey. That theme of mine remains in play because Professor Alan Taylor and Swati Dhingra can be relied on to vote for interest-rate cuts so the maths is in his favour. Should he do so as I expect we will see a test of the likes of Deputy Governor Lombardelli as to whether she will fall into the company line.
Along the way there will be a lot of dissent on this issue. The Mark Carney years in particular saw an expansion and indeed inflation of the number of senior roles and Deputy Governors. So now there is a reckoning as the junior ranks pay for this.
The Bank of England has said it is cutting jobs amid sweeping changes at Threadneedle Street after a highly critical review into its failure to forecast surging inflation.
Under budget pressures as it responded to the report from the former US Federal Reserve chair Ben Bernanke, the Bank has opened a voluntary scheme last week as part of an efficiency drive to find savings. ( The Guardian)
