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Sterling Jumps As BOE Keeps Rates Unchanged, Decides Not To Follow Fed Into QE Wonderland
The British pound jumped 50 pips earlier after the BOE decided to keep rates unchanged at 0.5% and not increase the level of QE from the current 200 billion pounds. In a situation that mirrors our own, the bank's board saw one member, Andrew Sentance, voting for a rate hike, with 8 others deciding to keep rates at the current 0.5%. Sentance pushed for an increase in the rate to 0.75 percent on concerns that inflation expectations may become dislodged. And in a somewhat analogous loosening-tightening dynamic to that of the US, even as many had expected the BOE to actually loosen some more by raising the amount of QE, the bank kept QE total at the existing level, without adding on a Lite, 2.0 of some other silly designator. The reason is that unlike in the US with its doctored core CPI metric, the UK is already experiencing inflation over 3%. As BusinessWeek notes: "Annual consumer-price gains exceeded the 3 percent ceiling in July,
requiring King yesterday to send a public letter of explanation to
finance minister George Osborne on how he plans to control the cost of
living. King argued that inflation has been driven higher by “temporary”
factors and reiterated the central bank’s readiness to change policy in
either direction." It appears that for the time being, the US is all alone, and well in the lead, in the currency debasement via more printing race.
More from Business Week:
“Sterling is probably a bit firmer on the fact that there wasn’t a vote on further quantitative easing,” Philip Shaw, an economist at Investec Securities in London, said in a telephone interview. “The risks on further easing on monetary policy were probably a bit smaller before the publication of the minutes. But really the bank is in neutral mode.”
Policy makers voted after considering new quarterly economic projections that showed inflation will stay higher before slowing to about 1.5 percent in two years, below the 2 percent target, and growth will peak at a 3 percent annual pace instead of the 3.6 percent rate forecast in May.
“Inflation seemed likely to be temporarily higher than the committee had expected at the time of the May inflation report,” the minutes said. “Increases in the prices of some agricultural commodities in the days leading up to the meeting suggested that the increased volatility of CPI inflation in recent years might continue.”
Wheat Prices
Sterling has fallen by about a quarter on a trade-weighted basis since the start of 2007 while oil prices have more than doubled in the last 18 months. Wheat prices have surged 44 percent in the past year.
For Sentance, “economic conditions had improved over the past 12 months and the inflation outlook had shifted sufficiently to justify beginning to raise rates gradually,” the minutes said. Second quarter data “suggested the recovery was gathering momentum and there was evidence that firms had found it easier to pass through price increases.”
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"Temporary factors" Huh!
And it will stay there too, inflation in all the things you need like food and fuel.
and what about the increase in VAT that is going to come about at the end of the year? That will push prices even higher! 'Temporary' my !£&%
Yeah, and when oil went up from 20 to 40$ it was because of a "Temporary" reduction in Iraqi oil supply. And when it jumped to 80 it was a "Temporary" reduction is supply becuase of hurricanes.
The only thing that is not temporary is the growth in money supply.
No money no inflation, more money, more inflation. Didn't King write that?
Don't worry, the QE-festival, Brit-style, will commence shortly.
Yes, monetary whack-a-mole.
The QE program is what is being shown to the world while I bet there is a significant off books buy back of non performing assets such as CMBS (looking at the ease with which several rollovers have been happening) and maybe soon the state and local debt. Who is to know as Fed records are not really audited and available to the public. It appears to me that the additional liquidity will not significantly impact inflation numbers as the USD continues to be freely accepted for global trade.
The game will change only if reluctance sets in with countries such as China and India start pursuing bilateral trade arrangements. But right now these countries appear to continue to play nice with the USD as they do not want to impact their exports (which mainly consists of services or value addition to raw materials imported from commodity rich countries) -- they are interested only in sustaining employment and keeping their population quiescent. As long as the US ensures the commodity rich countries continue to export their resources in USD, China and India and most of South East Asia will continue to play along even if they sense the USD reserves they are accumulating will ultimately turn out to be worthless in the future (a game of chicken with every country no doubt expecting to exit their reserve position before SHTF).
It appears to me that this game can go on much longer than many at ZH would like to think...
No one does destitute like the Brits.
EEeerrr' i seeeee,ya blasted stubborn, stiff upper lipped bucko's.Ya lost yer cool heh?.....I'll cut out yer' gizzards ya darn swines.Tis all down t'ya bitches i got ma self a sweet little treasure chest full of doubloons..... Ya mast b'now deeply regrettin' ya sold ya gold fur' a mer' 250 bucks in '99 m'shipmates.
Aaarrr. Aye, that we do regret, and more besides. And now we be followin' yer straight down to Davy Jones' Fiat Locker, so we be. Aaarrr.
kabuki theater
all of it
Yeah,no point putting up rates 'cos the spike in inflation is only temporary.
A bit like the temporary nature of the inflation rate being above the Bank of Englands target of 2% for 41 out of the last 50 months:
http://uk.reuters.com/article/idUKTRE66L08O20100722
Well, at least the downtrend of Sterling against the Icelandic Kroner has stopped. For now. Must be all those US Treasuries we keep buying, this is clearly making our balance sheet look healthier...
IMO this is not good for equities and those losers who believe in the existence of the Bernanke put. BOE and the Fed are on good terms and the economic problems they face are similar and intertwined.
Any QE would be coordinated or at least discussed well beforehand. No mention of more measures, just more 'uncertainty' on this side of the pond indicates to me that the Fed also is not ready to pull the trigger yet. That's also my interpretation of the speech yesterday by Kocherlatkotdumfukwhatever...
If you look at the fan chart (Chart 3) in the August report, it shows that the BoE hasn't got a fucking clue where the CPI is going.
http://www.bankofengland.co.uk/publications/inflationreport/ir10augo.pdf