Monday, September 25, 2006
Deputy governor goes hawkish
Posted by David Smith at 09:15 AM
Category: Thoughts and responses

In an interview with the Financial Times Sir John Gieve, the deputy governor of the Bank of England, argues that the fall in oil prices won't necessarily ease pressure for higher interest rates because it will boost demand and encourage firms to boost their margins. I think this is a case of "all news is bad news" - higher oil prices pushed up inflation but so could low oil prices - and is misguided. One or two MPC members agree with me. Read the transcript here.


It's merely the flip side of recent events in the US where markets rose on bad news believing that it will prompt the Federal Reserve to start cutting rates. There its been "all news is good news".
I know you personally have a long held view that oil will soon return towards $40 a barrel and the past week has born out just how quickly the price can fall.

Personally I'm not a great believer in the idea that a high oil price causes high inflation numbers (shock horror) and am quite willing to go along with Sir Johns prognosis that we shouldn't expect falling rates soon.

I still minded that we have possibly 125bps to climb over the next 18 months......and whats worse (for the BoE) is I expect that to be reflected in my future wage settlements.

Posted by: assetpriceinflation at September 25, 2006 12:55 PM

The sterling is overvalued.People may say its because of non-intervention by the BOE, letting market forces determine the value.
The down side is that predictions for inflation should not move currency markets the way it does.Small adjustments to the budget can tame inflation, thereby passing the buck on the government to pursue economic policy, and the letter going the other way round ie from the chancellor to the governor about inflation hitting 3%!!

Posted by: Hitesh Damani at September 27, 2006 10:49 AM