Right message, wrong time

It's precisely the wrong moment for central bankers to say they’re unimpressed.

This week saw the publication of the minutes of the Bank of England’s Monetary Policy Committee’s, (MPC), last meeting, on  3/4th July. They revealed that the decision to refrain from more Quantitative Easing, (QE), was unanimous. This makes it all the more likely that the publication of next month’s Bank of England quarterly Inflation Report will be accompanied by the introduction of so-called "forward guidance" on the future path of interest rates.

There are two variants of this seemingly arcane piece of central bank armament; "threshold dependent", the variety favoured by the Fed, where increases in rates are tied to metrics of economic performance, or the "time dependent" alternative tentatively embraced by the ECB, which promises to keep rates low, "for an extended period", say. My guess would be that the MPC will also go for the latter, as it is more likely to gain unanimous support on the committee.

Personally, for the UK, I find these policies at best a flawed concept, at worst quite probably counter-productive, and almost certainly bad for central bank credibility in the long run.

It’s the right message, at the wrong time.

Four years ago, say, (when Mark Carney blazed the trail by introducing such guidance in Canada), it would have been a great idea, as we had just narrowly avoided financial Armageddon and thought it was quite possible that the economy had entered a permanent winter. Right now, however, things are very different; the green shoots of recovery are well above ground, and it’s precisely the wrong moment for central bankers to damage psychologies by telling us they’re not terribly impressed by our efforts and think they’ll have to keep rates low for years. I’d further posit that the fear of rates going higher is, across the economy as a whole, not the major pre-occupation for individuals and businesses. Nobody is afraid that rates will return to the 15 per cent we saw in the early nineties in the UK; borrowing costs of 6 or 7 per cent do not seem life-threatening compared to the present 4 or 5 per cent.

No yield curve forever also drives the bankers’ dream of a return to 3-6-3 banking even further over the horizon, (borrow at 3 per cent, lend at 6 per cent, and on the golf course with the client by 6pm). Instead, why not borrow at 0.5 per cent and use the money to buy Gilts at 2.25 per cent, with zero credit risk-wonderful for bank balance sheets, but not much help for the economy?

Meanwhile, investors with spare cash don’t find 0.1 per cent deposit rates too exciting and are happy to plunge into emerging market corporate bonds at 4 per cent - which, ironically, is just the sort of mis-pricing of risk that is spooking central bankers.

Bank of England. Photograph: Getty Images

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

Ukip's Nigel Farage and Paul Nuttall. Photo: Getty
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Is the general election 2017 the end of Ukip?

Ukip led the way to Brexit, but now the party is on less than 10 per cent in the polls. 

Ukip could be finished. Ukip has only ever had two MPs, but it held an outside influence on politics: without it, we’d probably never have had the EU referendum. But Brexit has turned Ukip into a single-issue party without an issue. Ukip’s sole remaining MP, Douglas Carswell, left the party in March 2017, and told Sky News’ Adam Boulton that there was “no point” to the party anymore. 

Not everyone in Ukip has given up, though: Nigel Farage told Peston on Sunday that Ukip “will survive”, and current leader Paul Nuttall will be contesting a seat this year. But Ukip is standing in fewer constituencies than last time thanks to a shortage of both money and people. Who benefits if Ukip is finished? It’s likely to be the Tories. 

Is Ukip finished? 

What are Ukip's poll ratings?

Ukip’s poll ratings peaked in June 2016 at 16 per cent. Since the leave campaign’s success, that has steadily declined so that Ukip is going into the 2017 general election on 4 per cent, according to the latest polls. If the polls can be trusted, that’s a serious collapse.

Can Ukip get anymore MPs?

In the 2015 general election Ukip contested nearly every seat and got 13 per cent of the vote, making it the third biggest party (although is only returned one MP). Now Ukip is reportedly struggling to find candidates and could stand in as few as 100 seats. Ukip leader Paul Nuttall will stand in Boston and Skegness, but both ex-leader Nigel Farage and donor Arron Banks have ruled themselves out of running this time.

How many members does Ukip have?

Ukip’s membership declined from 45,994 at the 2015 general election to 39,000 in 2016. That’s a worrying sign for any political party, which relies on grassroots memberships to put in the campaigning legwork.

What does Ukip's decline mean for Labour and the Conservatives? 

The rise of Ukip took votes from both the Conservatives and Labour, with a nationalist message that appealed to disaffected voters from both right and left. But the decline of Ukip only seems to be helping the Conservatives. Stephen Bush has written about how in Wales voting Ukip seems to have been a gateway drug for traditional Labour voters who are now backing the mainstream right; so the voters Ukip took from the Conservatives are reverting to the Conservatives, and the ones they took from Labour are transferring to the Conservatives too.

Ukip might be finished as an electoral force, but its influence on the rest of British politics will be felt for many years yet. 

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