If you switched the radio, or television on this morning, or picked up a newspaper whilst getting the kids ready for school, you would be forgiven for thinking that Andrew Bailey had joined Miles Morales in the multiverse, given the amount of time the Bank of England’s chief was appearing in the media.
The media love-in with Bailey followed the Bank of England’s decision yesterday (24th March) to raise base interest rates by 25 basis points (0.25%) to 4.25% despite the issues swirling around the global banking sector.
In echoes of Margaret Thatcher’s famous speech to the Conservative Party Conference in October 1980, where she declared: “The lady’s not for turning”, Bailey double-downed on the policy of raising interest rates to dampen inflation.
This was despite the issues arising from failure of Silicon Valley Bank at the start of the month, and the drama that unfolded around Credit Suisse last weekend, a situation that, as The Armchair Trader wrote yesterday seems to be far from concluded.
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Bailey seems to have set his stall out against other Central Banks who are taking a more cautious approach in order to not break anything else (as we wrote last week the Fed seems to raise rates until something breaks – in this case it was SVB). Moreover, given the slightly better economic news in the last month in the UK (albeit with slightly worse inflation figures) is setting himself up against Prime Minister Rishi Sunak, who is starting to whisper the catchphrase immortalised by his predecessor Liz Truss, “Going for Growth.”
Inflation still too high
Bailey explained despite what is whirling around, the BoE’s Monetary Policy Committee still thought that inflation was too high. Like an AI-driven chatbot, Bailey is sticking to his line of argument and promised that it was likely more was to come, (after ticking employees off for asking for wage hikes in the cost-of-living crisis last month) unless businesses show a bit of restraint, and don’t put up their prices, as this would create more inflation and it would become a self-perpetuating cycle.
Bailey (who by his own omission earns GBP500,000-a-year, but “…can’t tell you exactly what [his salary] was, [as he doesn’t] carry that around in [his] head”), is definitely in the ‘we’re all in this together’ camp – now where have I heard that before?
However, Bailey did offer a crumb of comfort, as he said the BoE expects inflation to fall “quite rapidly” in the UK by the middle of this year, but “raising rates is the best tool to bring inflation down” and the BoE “need to see that actually happen.”
Meanwhile, life goes on in the rest of the world, as TickMill group’s market analyst, Patrick Munnelly, explains:
Yellen Flip Flop Leaves Markets Mixed
Asian equities retreated as investors paired risk exposure into the weekend, in line with Wall Street.
Investors have been buffeted by a round of mixed signals from US Treasury Secretary, Janet Yellen, who remained non-committal regarding deposit backstopping, hinting that such a move remained on the table.
This left investors in a dilemma between the what the market viewed as a dovish hike by the Federal Reserve and ongoing banking concerns. Considering another weekend of uncertainty, it seems investors would rather wait for some clarity before deploying risk capital.
Over the pond, UK retail sales released this morning have surprised market watchers as the headline print displayed a 1.2% rise in sales volumes (including fuel) in February. However, the inter-month strength has been somewhat countered by an overall annual decline.
Preliminary UK March’s flash Purchasing Managers’ Index (PMI) [an index of the prevailing direction of economic trends in the manufacturing and service sectors], released this morning will give a timely update on economic trends indicating whether or not February’s advance was a nascent trend or an anomaly.
PMI reports in both the Eurozone and the US will also be analysed by investors for further signs of continued improvements as both are expected to nudge above the pivotal 50 expansionary level.
US durable goods orders for February are expected to see a 1.7% increase countering January’s losses.
