Super Thursday: Five Things to Watch Out For

The Pro's Guide to Playing 'Super Thursday'

The Bank of England’s Monetary Policy Committee will release its August interest-rate decision, minutes of the policy meeting and new economic forecasts at noon in London. Governor Mark Carney will hold a press conference at 12:45 p.m.

That’s part of a new communications format under Carney and comes against a backdrop of accelerating wage growth and the longest streak of continued economic expansion since before the recession in 2008. Carney set the tone for the event by saying last month the time for tighter policy was approaching.

Here are five things to look out for from the Bank of England’s “Super Thursday.”

1. MPC Votes

The nine-member MPC has voted unanimously to keep the key interest rate at 0.5 percent for the past seven months. That’s about to change, with most economists seeing at least two voting for an increase on Thursday.

The most commonly cited names are Ian McCafferty and Martin Weale, who voted for rate increases five times last year before abandoning the cause in January as inflation slid to zero. David Miles could also opt for tighthening, though this is his last meeting. More interesting would be if another member -- Kristin Forbes is sometimes mentioned -- joined the dissenters.

2. Inflation Forecasts

The MPC’s inflation projections are a key guide, with changes in the medium-term forecast relative to the 2 percent target offering the most important signal whether tighter or looser policy is needed.

The MPC forecast in May that inflation would be at 2.14 percent in three years based on investor expectations that interest rates would begin rising in the third quarter of 2016.

In their latest forecasts, policy makers will have had to weigh faster wage growth against a stronger pound and lower oil and commodity prices. Economists such as Bank of America Merrill Lynch’s Rob Wood see the latter pushing down the MPC’s near-term inflation forecast, though its projections further out will be little changed as the temporary deflationary factors fade.

3. Wage Growth

Wage growth is at the center of the MPC’s policy debate as officials assess labor-market tightness and the level of slack in the economy. The latest data show pay is rising at the fastest annual pace in five years. For some, such as Martin Weale, that’s setting off alarm bells about inflationary pressure in the labor market. For others, mainly Andy Haldane, wage inflation “isn’t racing away” and there shouldn’t be any rush to raise rates.

4. The Minutes

Whether the decision is “finely balanced,” or “becoming more finely balanced,” BOE policy makers are experts at finessing their language and then leaving observers to read between the lines.

In the latest example of a change in momentum, the minutes of the July meeting contained this new line: “For a number of members, the balance of risks to medium-term inflation relative to the 2 percent target was becoming more skewed to the upside at the current level of bank rate.”

That was seen as a key development and any further change to this language will indicate another shift within the committee.

There’s also the MPC’s assessment of Greece, which last month was a “very material factor” in the decision.

5. The Last Word

It’s not all over at noon. Carney begins an hour-long press conference 45 minutes later.

 The gap between the release of the decision and glut of information not only gives economists and analysts a chance to digest it all, but will provide the governor an opportunity to gauge the market reaction and adjust his tone (if needed) for the press conference.

Don’t tune out until Carney is headed for the exit.

Brace Yourself for 'Super Thursday'

 

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