Our MPC-ometer forecasts the Monetary Policy Committee vote each month based on a small number of economic and financial variables. The model suggests a 7-2 decision for unchanged rates at this week’s meeting (two votes for a 25 b.p. cut).<\/p>\n
All 56 economists polled by Reuters last week expected rates to be held this month but 12 forecast a decline in November. Some of the doves are drawing a parallel with 1998, when the MPC raised rates in June but cut them in October, partly in response to a financial crisis. Further substantial reductions followed. <\/p>\n
I think the comparison with 1998 is flawed for three reasons. First, the economy looks stronger now than then. GDP was estimated to have grown by only 0.5% in the first and second quarters of 1998, compared with 0.8% per quarter in the first half of this year. <\/p>\n
Secondly, the 1998 financial crisis hit confidence hard. Business and consumer surveys weakened sharply and the stock market fell 25% from peak to trough. The latest surveys show a modest impact from recent turbulence, while the decline in stocks has been limited to 13%, with much of the ground subsequently recovered.<\/p>\n
Thirdly, inflation risks look higher now, with businesses attempting to lift prices and broad money growth booming. The latest CBI industrial survey shows a balance of 16% of firms planning to hike prices, compared with 17% planning to cut<\/u> in September 1998. <\/p>\n
I am still inclined to think that rates are on hold until year-end, though will be guided by the MPC-ometer. Looking further ahead, the scope for reductions appears much more limited than in 1998-99. <\/p>\n","protected":false},"excerpt":{"rendered":"
Our MPC-ometer forecasts the Monetary Policy Committee vote each month based on a small number of economic and financial variables. The model suggests a 7-2 decision for unchanged rates at this week’s meeting (two votes for a 25 b.p. cut). All 56 economists polled by Reuters last week expected rates to be held this month […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-2452","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2452","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2452"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2452\/revisions"}],"predecessor-version":[{"id":4761,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2452\/revisions\/4761"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2452"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2452"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2452"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}