7 Aug 2013
Flash: New developments in UK monetary - BMO
FXstreet.com (Barcelona) - Stephen Gallo, Head of European FX Strategy at BMO Financial Group commented on Carneys report today.
Key Quotes:
"These new developments in UK monetary policy in our opinion leave the BoE’s overall policy framework right in between that of the Fed’s and the ECB’s, and this is apparent in a number of areas, including the new focus on a 7% unemployment rate (which is NOT a Fed-style target) alongside financial stability and CPI inflation “knock-outs”, which keep the BoE at a safe enough distance away from the political sphere".
"At the same time however, both “knock-outs” imply a significant degree of policy “flexibility” as well, considering that even if CPI is above 2.5% YoY, as it is now, the MPC will not necessarily need to shift its stance to make sure CPI is back at 2.0% over the medium-term if its not satisfied with lending growth and the level of banks’ support for the broder economy".
"Overall, our view remains that a “flip” in BoE policy rhetoric towards hawkish is ultimately what will be needed from this point forward to allow UK rates and the GBP to track the economic data higher in tandem. All things considered, today was most definitely not about that “flip”".
Key Quotes:
"These new developments in UK monetary policy in our opinion leave the BoE’s overall policy framework right in between that of the Fed’s and the ECB’s, and this is apparent in a number of areas, including the new focus on a 7% unemployment rate (which is NOT a Fed-style target) alongside financial stability and CPI inflation “knock-outs”, which keep the BoE at a safe enough distance away from the political sphere".
"At the same time however, both “knock-outs” imply a significant degree of policy “flexibility” as well, considering that even if CPI is above 2.5% YoY, as it is now, the MPC will not necessarily need to shift its stance to make sure CPI is back at 2.0% over the medium-term if its not satisfied with lending growth and the level of banks’ support for the broder economy".
"Overall, our view remains that a “flip” in BoE policy rhetoric towards hawkish is ultimately what will be needed from this point forward to allow UK rates and the GBP to track the economic data higher in tandem. All things considered, today was most definitely not about that “flip”".