Thursday marked the beginning of a new approach to monetary policy communications from the Bank of England (BOE), simultaneously releasing their decision on interest rates, the minutes from that meeting and the quarterly inflation report, which sets out detailed economic analysis and inflation projections used in setting monetary policy.
By “ending the drip feed of information”, the BOE is seeking to promote transparency on how they set policy and their outlook for interest rates. Still, being billed as “Super-Thursday” in the financial media was definitely a stretch.
In terms of what we learnt from the latest monetary policy communications, there are no revelations. There has been significant improvement in the UK economy but “some underutilised resources” remain, according to Carney. He described the fall in inflation as “the most striking development in the UK in the past year”.
While acknowledging that the “timing of the first Bank rate increase is drawing close”, he noted that “the exact timing of the first move cannot be predicted in advance; it will be the product of economic developments and prospects. In short, it will be data dependent.”
“Data dependent” is also a favourite of the US Federal Reserve’s Janet Yellen when commenting on the outlook for interest rates. It is a reminder for those seeking certainty on the outlook for the economy, monetary policy and the financial markets, even the people pulling the strings – the world’s central bankers – cannot legislate for how events will actually play out in the future.
Of course, like the US Federal Reserve, the Bank of England want to play down the significance of the precise timing of the first interest rate hike, to avoid spooking a market that has become increasingly hooked on easy monetary policy. Encouraging investors to focus more on the path rather than the precise timing of rates, Carney confirmed that “The MPC expects Bank Rate increases, when they come, to be gradual, and to be limited to a level below past averages.”
In other words, the easy money party won’t be ending any time soon!