The Bank of England was assailed on Thursday by investors for not delivering an interest rate rise, in what could be a sign of things to come as central banks around the world tread carefully to balance inflation risks and economic growth.
Economists don't expect anything at https: www.reuters. The 7 -- 2 vote Thursday against tightening policy caused a 1.5% drop in sterling and a jump in government bond prices, while money markets that had priced in a second increase before year-end pushed back their bets to February.
Bailey basically marched us up the hill, and then voted to keep rates steady, said Peter Kinsella, head of FX at Swiss private bank UBP.
They will have made themselves no friends in the market today. Bailey defended the decision on the internet at https: www.reuters. The world uk bank-england - wrong-foots - markets- keeps rates- hold - 2021 - 11 - 04 in a news conference, saying that policymakers had never indicated they would act at a particular meeting. If the economy performs as expected, the BoE said it will still need to raise rates in the coming months.
Bailey rejected a suggest by a reporter that he was unreliable boyfriend number two, a nickname first used by a lawmaker in 2014 to describe his predecessor Mark Carney, whose signals on rate moves did not translate to action.
Bailey joked that governor of the Bank of England is not compulsory for a governor to be an unreliable boyfriend.
He said that monetary policy could do little to hurt inflation in the near term, and longer-dated inflation expectations had risen relatively less.
Thursday's events show that the BoE has a big communication challenge, full stop, said Paul O'Connor, head of multi-asset at Janus Henderson.
Why has governor sounded so hawkish over the last couple of months when he spoke after speech has clearly narrowed market expectations higher? The BoE is not the only central bank to have wrong-footed markets in recent days and be accused of confused messaging.
Financial australias-central bank-holds - rates-drops - yield- target - 2021 - 11 - 01 last week stood by as markets busted its 1% target on three-year bond yields. The target was dropped and agreed rates might increase before a previously flaged 2024 date. In a move UBP's Kinsella called capitulation euro zone bond yields rose after the European Central Bank announced that it had a captulation euro zone bond yields rose. Last week the world europe ecb-push back-over - increase-rates - expectations - 2021 - 10 -- 27 came across as too timid in pushing back against markets' interest rate projections. The world Americas bank canada said it could increase rates sooner than expected in 2021 - 10 - 27 and surprised hawkishly, saying it could increase as early as April.
Janus Henderson's O'Connor said the difficulty markets are having in reading central banks as economies recover from COVID-19 and the adoption by some central banks of more flexible inflation targets.
The BoE is not one of those. There are survey based price expectations at 13 year highs, so there are survey based price expectations. The world uk uk inflation expectations were highest since 2008 - before-boe rate decision - citiyougov - 2021 - 10 - 26 and annual inflation seen at 4.25% by end 2021, and money markets had a 15 basis point rate rise for this week and another 25 bps increase next month.
There is a lot more uncertainty about central banks' reaction function. Until now there was no conflict - they were still sustaining growth because inflation was not a problem, O'Connor told banks to better articulate which objective they were prioritised.
Markets expect a total 97 bps of BoE hikes by November 2022, against 120 bps seen at the start of this week.
Financial investors have been misled by the BoE and its peers.
The bank's communications and economic data were at the odds with the July 2022 ECB rate increase.
Some analysts said market pricing for a BoE tightening on Thursday had been exaggerated by technical factors, while others said traders had misinterpreted recent comments by policymakers https: www.reuters. com article britain-boe - quotes-idUSKBN 2 HM 27 B including Bailey and the BoE"s new chief economist Huw Pill.
The conditional nature of Pill and Bailey's comments was ignored by people positioned wrongly ahead of today's BoE interest rate decision, said Simon French, chief economist at Panmure Gordon.