Baptism of fire for Carney as global economy moves up through the gears

The minutes of his first meeting.

The minutes of his first Bank of England MPC meeting reveal that the urbane Governor Carney in fact had quite a baptism of fire, having to preside over a meeting riven by dissent, which was very significant, tending to suggest that the MPC's commitment to keep rates "low, for longer", is weaker than first thought.

First of all, there was a bombshell line in the minutes, revealing some sympathy with market rate hike expectations. Governor Carney had previously tried to persuade the market to flatten the yield curve, labelling the market’s expectations for the quantum and timing for rate rises as "unwarranted", but we now discover that this view was by no means unanimous on the committee:

"Other (MPC) members did not think market interest rates were obviously out of line with their view of the outlook."

Yet more dissent came from MPC member Weale, who objected to the 18 to 24 months horizon embodied in one of the "knockouts" that would cause the Bank to raise rates before unemployment reaches the 7 per cent threshold. He felt that the 18 to 24 months horizon was too long, i.e. the Bank will be prepared to ignore a blip in inflation if it thinks it’ll be back below 2.5 per cent within two years, (oh yes, the Bank’s inflation target has effectively now surreptitiously risen to 2.5 per cent, rather than 2 per cent). "One member, while accepting the principles of forward guidance, saw a particularly compelling need to do more to manage the risk that forward guidance could lead to an increase in medium-term inflation expectations, by setting an even shorter time horizon; that would make clear that the forward guidance was fully compatible with the Committee’s commitment to meeting the 2 per cent inflation target in the medium term."

Evidence seems to be mounting that global economic activity seems finally to be accelerating-maybe even creating a more classically rapid recovery, as opposed to the rather anaemic variety we have so far enjoyed.

UK economic data is already on a roll, with significant recent positive surprises from employment and weekly earnings, Purchasing Managers’ Indices, (Manufacturing, Construction and Services), Industrial Production, the Trade Balance, and  of course, Housing Indicators. As for the US, the July unemployment report may have been a tad disappointing, but forward-looking indicators such as the ISM surveys, (both Manufacturing and Non-manufacturing), have recently exceeded expectations, retail sales look healthy, and the latest jobless claims figures were very good news.

Even the poor old Eurozone has managed to crawl out of recession, and China has become more supportive of growth. For example, China Daily yesterday noted that Beijing authorities are aiming to boost the consumption of information products and services. China’s consumption of information products and services is expected to grow at an annual pace of at least 20 per cent to reach CNY3.2 trn ($518 bn) by the end of 2015, according to a guideline released by the State Council yesterday. In another positive sign, China’s industrial power usage rose to a one-year high in July.

All of this means that bond markets are set to remain on the ropes, testing and pushing through recent highs in yields, returning to the sort of standard risk premia that normally determine the levels of long-term rates, as opposed to the search for safe-havens which has driven markets since the crisis broke.

Mark Carney. 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.

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Theresa May knows she's talking nonsense - here's why she's doing it

The Prime Minister's argument increases the sense that this is a time to "lend" - in her words - the Tories your vote.

Good morning.  Angela Merkel and Theresa May are more similar politicians than people think, and that holds true for Brexit too. The German Chancellor gave a speech yesterday, and the message: Brexit means Brexit.

Of course, the emphasis is slightly different. When May says it, it's about reassuring the Brexit elite in SW1 that she isn't going to backslide, and anxious Remainers and soft Brexiteers in the country that it will work out okay in the end.

When Merkel says it, she's setting out what the EU wants and the reality of third country status outside the European Union.  She's also, as with May, tilting to her own party and public opinion in Germany, which thinks that the UK was an awkward partner in the EU and is being even more awkward in the manner of its leaving.

It's a measure of how poor the debate both during the referendum and its aftermath is that Merkel's bland statement of reality - "A third-party state - and that's what Britain will be - can't and won't be able to have the same rights, let alone a better position than a member of the European Union" - feels newsworthy.

In the short term, all this helps Theresa May. Her response - delivered to a carefully-selected audience of Leeds factory workers, the better to avoid awkward questions - that the EU is "ganging up" on Britain is ludicrous if you think about it. A bloc of nations acting in their own interest against their smaller partners - colour me surprised!

But in terms of what May wants out of this election - a massive majority that gives her carte blanche to implement her agenda and puts Labour out of contention for at least a decade - it's a great message. It increases the sense that this is a time to "lend" - in May's words - the Tories your vote. You may be unhappy about the referendum result, you may usually vote Labour - but on this occasion, what's needed is a one-off Tory vote to make Brexit a success.

May's message is silly if you pay any attention to how the EU works or indeed to the internal politics of the EU27. That doesn't mean it won't be effective.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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