Carney Seen Dodging BOE Letter Chore as Inflation Skirts Limit
Bank of England Governor Mark Carney will escape one of the more embarrassing chores of his job this month as inflation skirts the government’s limit by just enough to avoid him writing a public letter, economists said.
Data due next week will show consumer-price growth accelerated to a 14-month high of 3 percent in June, according to the median forecast of 31 economists in a Bloomberg News survey. Anything higher would require open correspondence by the governor to account to the Treasury for the deviation of more than a percentage point from the 2 percent target.
Such an outcome would prove an early test for Carney at a time when he is also implementing a revamped mandate for the BOE. Letter-writing on consumer prices has been a pillar of the bank’s framework since 1997, and Carney’s predecessor, Mervyn King, had to explain two bouts of inflation after 2007 that pushed the rate above 5 percent.
“If I’m wrong, it’s more likely it’s 3.1 percent and the governor has to write a letter,” said Alan Clarke, an economist at Scotiabank in London, whose prediction is for a 3 percent result next week. “This is a one-month thing, and we’re very confident that inflation will trend back down to 2 percent within the next couple of years.”
Under a new format for the open letters announced by Chancellor of the Exchequer George Osborne this year, any correspondence would be published on the day of the minutes of the next meeting of the Monetary Policy Committee.
That means any letter generated by next week’s data wouldn’t be released until Aug. 14. Previously, it would have been published the same day as the inflation data.
Clarke said that annual price increases for energy, clothes and food may push the inflation rate up from 2.7 percent in May. While economists including Mark Zandi at Moody’s Economy.com predict no change from that reading, 11 of those surveyed forecast 3.1 percent or higher, including Morgan Stanley & Co. and Standard Chartered Plc.
The combination of accelerating inflation and purchasing manager indexes exceeding 50, the level which denotes expansion, would augur against Carney pursuing more stimulus, Clarke said.
“If we get a near 3 or letter-writing territory, and PMIs in 50 territory, it’s suggesting that he’s not going to be particularly dovish,” he said. “It’s a challenging environment to come in and say we need to press the emergency panic button and say more quantitative easing.”
The Office for National Statistics will release the inflation data at 9:30 a.m. in London on July 16. The next day, it will publish labor-market numbers that economists predict will show falling jobless claims in June and an unchanged unemployment rate of 7.8 percent in the quarter through May.
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