Capital Relief Becoming More Interesting For Banks
Following central bank commentary and actions has been a really useful source of information in the post global financial crisis world; however, closer to home here in the UK the commentary and the actions have been less consistent than those coming from either the Fed or the ECB.
Mark Carney gave us some very good guidance in February about the path of short term rates in the UK - only for that guidance to be withdrawn a couple of months later. He has built somewhat of a reputation for changing his mind, and thus his commentary has been less reliable than his counterparts in Frankfurt and Washington.
We have speculated that he potentially speaks his own mind rather than that of the MPC as a whole. If that is the case, what does that mean for rate expectations and what can we potentially take out of this thought?
In our view it is very unlikely that Mark Carney would vote against the consensus of the 9 MPC members. Technically he casts his vote last so he can always be part of consensus.
Last month the vote to keep rates on hold was 7 votes to 2, with the known hawks Ian McCafferty and Michael Saunders being the dissenters. We expect the same outcome later today following the MPC meeting. We speculate that Mark Carney may be a hidden hawk within that voting, which really makes the vote 6/3 and leaving the MPC just 2 votes short of a 5/4 in favour of a hike. The dynamics of the debate could well swing quite quickly if one more member jumped into the hike camp and Mark Carney indicated a willingness to follow before the votes were cast.
As mentioned we do not think this will happen tomorrow, and we do think that the MPC will be cautious about hiking while Brexit negotiations hang over the economy; however, with McCafferty having his last vote in August, we think this will really be the month to look out for, not today.