Carney to Gauge Economy as Official Muddies BOE Rate Outlook

  • BOE Governor Mark Carney to testify to lawmakers on Tuesday
  • ONS report to reveal third-quarter growth drivers on Friday

Mark Carney will give his latest assessment of the U.K. economy this week, days after his deputy emphasized that the Bank of England hasn’t made any promises about maintaining record-low rates.

The BOE Governor will testify to lawmakers in London on Tuesday and a report on Friday is set to reveal what drove growth in the third quarter. Separate surveys on retail sales and consumer confidence will give insight into the fourth quarter, while Chancellor of the Exchequer George Osborne presents his year-end fiscal plan on Wednesday.

Mark Carney
Mark Carney
Photographer: Chris Ratcliffe/Bloomberg

The timing of the BOE’s first tightening in more than eight years is in the spotlight as the Federal Reserve prepares to increase its key rate and the European Central Bank considers adding stimulus. While U.K. officials signaled earlier this month that Britain needs emergency policy settings for a while longer, BOE Deputy Governor for Monetary Policy Ben Broadbent suggested last week investors had inferred too much certainty from that analysis.

“With the ECB and the Fed decisions coming up in December, there’s no need for the BOE to update their view now,” said Rob Wood, an economist at Bank of America Merrill Lynch in London and a former BOE official. “I’ll be looking for how strong consumption and investment were and how fast services grew.” 

Data Focus

Carney’s testimony will be scoured for signs his approach has evolved since the quarterly Inflation Report when the central bank trimmed its growth and inflation forecasts for this year and next. While that sent the pound tumbling and prompted traders to push back bets on the timing of a rate increase, Broadbent said last week there’s more to be gained from focusing on broad economic prospects than the relationship between the BOE’s inflation projections and investors’ interest-rate assumptions.

Broadbent’s assertion that “it’s ultimately the economy that determines” the path of interest rates suggests that as the threat from emerging markets abates, some officials may vote to move away from emergency policy settings more quickly than investors anticipate. Forward contracts based on the sterling overnight index average aren’t fully pricing in a rate increase until after January 2017 and while inflation is near a record low, unemployment has reached a seven-year low and wage growth is picking up.

The pound fell against the dollar and was trading at $1.5135 as of 11:56 a.m. London time, down 0.4 percent since Friday.

Parliament Appearance

BOE Chief Economist Andy Haldane and policy makers Kristin Forbes and Gertjan Vlieghe will appear alongside Carney on Tuesday. All four officials were among the eight-strong majority that voted to keep the key rate at 0.5 percent in November, with only Ian McCafferty calling for an increase.

Three days after the officials testify, the second estimate of GDP, from the Office for National Statistics, will show how household expenditure, investment and exports performed in the three months through September. The estimate will confirm growth of 0.5 percent, according to a Bloomberg survey, and the details will probably reveal consumer spending held up while net trade dragged on growth.

A Confederation of British Industry report on Tuesday is forecast to show the volume of retail sales increased in November and a consumer confidence index on Friday will show whether consumers are likely to continue to power growth with their spending.

Sliding Exports

Elsewhere the picture is less rosy. A survey last week showed factory executives expect output to drop over the next three months, and a gauge of export orders slipped to the lowest since early 2013.

Rebalancing the economy away from services has been a challenge for Chancellor of the Exchequer George Osborne, who will announce the Autumn Statement and Spending Review on Nov. 25. The chancellor is on track to miss his deficit-reduction target this year, diminishing the chances he might soften austerity.

Carney may repeat his line that strength at home is being offset by weakness overseas. A more upbeat take on the international outlook is likely to be interpreted as a sign that rate increases are on the way. Fed officials have made it clear that they’ll debate higher rates at their next meeting, which is scheduled for Dec. 15-16.

“Carney is likely to be as ambiguous” about policy as Broadbent was last week, said Kallum Pickering, an economist at Berenberg in London. “The Bank of England is doing things for a reason -- their strategy is probably just to let the Fed go, let the economic data keep coming through and speaking for itself.”

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