Comments: What will move the Bank?

An excellent summary David.

"There are risks to the central views for growth and inflation – both on the upside and the downside – and on these there are some differences of view among Committee members, but those are small relative to the uncertainty surrounding the central projections ... In the Committee’s view, the balance of risks to the path of demand is slightly on the downside, associated with the outlook for consumer spending and net trade, which poses downside risks to inflation. But, in the Committee’s judgment, there are also upside risks from the path and possible impact of energy prices and the uncertainties about the extent of spare capacity in the economy at present."

This is one of the clearest paragraphs of guarded Bank-speak I've seen. It says it all whilst saying nothing.

Looks like your prediction of hold with a quarter-point cut in the second half of the year, remains likely.

My prediction of hold , raise by quarter in march and two more quarter point raises in second half is now under pressure.
I'm sticking with it though as I can still see the US rising above 5.25% by end of year.

Posted by assetpriceinflation at February 16, 2006 09:25 AM

"Stop press: Official figures show that retail sales volume fell by 1.3% between December and January."


Presumaby Mervyn King will have seen these figures before he made his comments about the state of the economy. This kind of leaves two possible explanations......

1) He genuinely believes January is a blip and not too much should be read into it (ie we take his comments at face value).

2) He has concerns that it is the start of a trend but does not want to set hares running over lowered interest rates because of the danger of reigniting asset inflation which he might feel is the worse of the two evils.

Anecdotally the January spending dip has continued into February and if anything accelerated. So I incline to the latter, especially as Merv has access to a wide variety of information including leading indicators of the economic situation in advance of the official stats.

Do you have a view on this starnge situation of Mervyn being steady/upbeat on the ecdonomy and the retail figures appearing to contradict this?


Posted by David Brown at February 19, 2006 07:04 PM

I think he may be assuming that non-retail consumer spending is stronger than retail - retail sales account for only about 40% of all consumer spending. He's probably also sticking to his previously-stated view that the retail sales picture generally stays foggy until Easter. Other MPC members may take a different view.

Posted by David Smith at February 19, 2006 08:30 PM
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