So today is BOE day. The first one since post-Brexit. And it is clear that policy makers have been scared for the past 3 weeks.
We now actually expect a rate cut of 0.25% to the Bank Rate and this is viewed as a “token” rate cut to give us a fuller package in August!!
We are expecting a discussion of a bigger easing package to re-introduce QE and possibly Corp Bonds!! Honestly get a grip.
At present, out of 54 individuals surveyed by Bloomberg, 24 expect rates to remain unchanged at 0.50%, while 24 expect a 25bp cut. The remaining 6 expect cuts to 0.1%, 0.05% and 0.0%. What are those 6 analysts on!!! A cut to ZERO. We are in very serious danger of plots being so far lost we forget what reality actually is.
On June 30th, Carney gave a very dovish speech where he stated,
“In my view, and I am not pre-judging the views of the other independent MPC members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer. The Committee will make an initial assessment on 14 July, and a full assessment complete with a new forecast will follow in the August Inflation Report. In August, we will also discuss further the range of instruments at our disposal.
In the Q&A Carney said, “there are two MPC meetings this summer, July and August, and I would look at those as a bit of a package”.
So it would seem that a move to the Bank rate is almost a done deal. Or is it? The cable has lost 220 points at it’s max from 1.50 down to 1.28. We are just recovering as politically we stabilise to 1.32. We actually have a reverse Head and Shoulders in place that if it pans out could drag us back up to 1.36/1.37 areas. A rate cut would blow that idea out of the water and send the FX tumbling again. Is this really what Mr. Carney would want. The FTSE is trading at 6670ish. The highest point since early 2015. These conditions do not warrant a rate cut in my opinion.
And yet we still may see one at 12PM UK time. Why? Because today we live in total fear of recession. We have fallen into the trap of thinking that we must always grow and house prices must always rise. Our wealth has become mirrored by what we think our house price is worth. I know of at least 3 close friends who have had estate agents round in the last 2 weeks to get a valuation on their house that they have no intention of moving from. And this is just painfully wrong. The answer is not to destroy “green belt”, build more characterless boxes, shoehorn them in before schools, roads and infrastructure can cope.
I ask would it really be so terrible if we just put the brakes on a touch. If house prices roll back a little?? Because right now our children and the next generation will need to earn a 6 figure income leaving University to stand a chance of buying a home. And when I say “home” ….I mean home….not an investment, not a buy to let, a home….the definition of which is “the place where one lives permanently, especially as a member of a family”.