Yesterday’s Bank of England monetary policy statement carried no real surprises. There was no change to either the interest rate or the asset purchase facility. Reading the minutes of the Monetary Policy Committee (MPC) meeting one could be forgiven for thinking that there is a sense of exhaustion on the part of the members as they wait for some kind of solid evidence that the economy has reached a stage where monetary policy can be normalised – that is to say that interest rates can start to rise from their current unnaturally low levels.
The big bugbear is still inflation, or the lack of it. The minutes acknowledge that unemployment levels are quite good, but the effects of this on the economy are more than offset by the fact that there is no pressure for wage rises. This is a worry as the fact that so many are working will do nothing to raise inflation.
Sterling took a hit on the release of the statement and minutes, although it later recovered somewhat. Perhaps the part of the minutes which concentrated on what would happen when and if rates do start to rise was a factor in the drop. From the release:
“All members agree that, given the likely persistence of the headwinds weighing on the economy, when Bank Rate does begin to rise, it is expected to do so more gradually and to a lower level than in recent cycles”.
U.S. Retail Sales are out today
The latest report on retail sales in the US will be released later today. As always, this will be closely watched, but even more so on this occasion as there was some concern about the level of sales on the so-called “Black Friday” (November 27th), the ‘official’ start of the Christmas shopping season, when retailers are supposed to break out of the red and into the black on their profit and loss accounts for the year.
We will see later today if this was likely to be the case.