September 16, 2022 | 13:50
Can the BoE and Treasury Mix?
The BoE announcement itself on September 22 may not be the main event that the market will be tuning into. Sure, the rate hike …50 or 75 (we are in the 75 bp camp)… will be of note. But the press briefing that will follow may generate more interest to see how Governor Bailey responds to questions about the new Chancellor’s deepening involvement with his job.
For example, Kwasi Kwarteng has requested that he and the BoE head meet twice a week to “coordinate closely to support the economy over the coming months”. Does that mean that the Chancellor will express his opinion on monetary policy, possibly interfering with the central bank’s independent thought? And what about PM Truss’ new policies, such as lifting the cap on bankers’ bonuses, which is not going over well with the unions, and tax cuts? The details will be revealed when the Chancellor tables an emergency mini budget the day after the BoE announcement.
In any event, those policies will impact what the BoE is trying to do, which is quash inflation. And, the U.K. inflation rate is still near its highest level since 1982 at 9.9% (even though lower gas prices helped pull it back from July’s 10.1%). And, the expected coming surge in inflation this fall looks like it will be avoided thanks to the new “Energy Price Guarantee” which will cap households’ annual utility bill at £2,500 per year (instead of the 80% jump to £3,549). That will help the cause. But the new fiscal policies that are reportedly going to focus “entirely on growth” will keep the BoE on its toes.