Bank Of England Preview: Welcome, Mr. Carney‏

We expect the Bank of England (BoE) to remain on hold at Thursday’s Monetary Policy Committee (MPC) meeting (13:00 CET).

This is the first meeting of the MPC with Mark Carney at the head of the table. Even though we think that some form of forward guidance is the most likely policy change in the near future, we do not expect it to come until 7 August with the next Inflation Report.

If Thursday poses any change from the recent meeting routine, we think a change away from the usual ‘no change in policy-no statement’ is more likely than any ‘hard’ policy changes. A more extensive statement might accompany the decision

How does ‘monetary activism’ look in action?
This Monday Mark Carney had his first day as governor of 'the Old Lady of Threadneedle Street’ and much attention has been drawn to his arrival.

In the presentation of the 2013 Budget Chancellor Osborne stressed three important cornerstones: (i) fiscal responsibility, (ii) supply-side reforms and (iii) monetary activism. The appointment of Mark Carney as the new governor and the review and update of the remit for the MPC are thus central elements on the Chancellor’s mind. Speculations of how the Osborne-Carney partnership could change UK monetary policy was fuelled with Carney’s endorsement of Nominal GDP level targeting (a subject he lately back-tracked somewhat from in his testimony before the Treasury Committee) and his comments in Davos of monetary policy being ‘far from maxed out’ and should continue to work until economies achieved ‘escape velocity’, even if inflation was above target. However, we have little information of Carney’s assessment of concrete policy actions in the UK as he until now has avoided to comment on this subject.

In the table below we list some of the possibilities there have been on the table regarding policy changes from MPC. As the UK activity recently has showed positive tendencies, we think that the Carney governorship is more likely to have communicative changes in the monetary policy than ‘hard’ changes (e.g. rate cut, QE expansion).

To Read the Entire Report Please Click on the pdf File Below.