Just one week after the British electorate delivered an inconclusive outcome in Theresa May's snap election, the Bank of England opted yesterday to leave interest rates unchanged. But there was a surprise in the minutes of the latest meeting of the UK central bank as they showed that policymakers were considerably divided on the way ahead.
Eugene Kiernan, Head of Investment Strategy with Appian Asset Management, said the UK economy was at an inflection point. "Some of the numbers aren't coming in as good as they had done prior to this. Perhaps we're into a slower phase for the UK economy. The last thing you would want to do is inject a rate hike into that."
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Mr Kiernan pointed out that the 5-3 split on increasing rates was the biggest split in six years, which was significant. "Ultimately, the Bank of England would like to more or less stay where they are on rates and let inflation move up a bit in the short term, rather than run the risk of choking off the economy," he explained.
Conversely, he said, the missing ingredient in the US at the moment is inflation. Despite that the US Federal Reserve opted for a rate hike, as expected, this week. "The jobs market has been strong in the US but it hasn't been matched by wage growth. It's a question of degree rather than substance there. The Fed is on the path to higher rates, but perhaps not an many as expected over the balance of the year."
So might all this talk of rate hikes put pressure on the ECB to move to increase rates too? "The ECB is facing one of the nicest challenges of the major banks. The economy is improving. It's the one that has surprised the most on the upside. On rates, they will want to do very little. They may look to begin a conversation about reining in Quantitative Easing, but as far as rates go, we stay low," he concluded.
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MORNING BRIEFS - Euro zone finance ministers have struck a deal on the latest slice of Greece's bailout.
It will see €8.5 billion being disbursed to the Athens government, just in time to help avert a new crisis next month when €7 billion in loan repayments falls due. The IMF has agreed in principle to get involved but it said any payout would depended on the euro zone coming up with a full debt relief plan for Greece. A compromise proposal put forward by France would see debt repayment linked to future Greek growth.
*** Just as the Government appoints a go-to minister for Brexit issues in the form of Foreign Affairs Minister, Simon Coveney, four of five executives here say the Government is not providing adequate information to prepare for Brexit. This is according to a survey of 400 companies carried out by the accountancy firm, BDO. In many ways, Brexit is an unknown quantity as negotiations will not kick off until next week. But many will be hoping that the outcome of the UK election last week will deliver a softer Brexit than might have been the case before.
