Hello and welcome to the FT’s live blog on the European Central Bank’s rate decision and press conference. All eyes on Thursday are on the ECB and what it has left in its tool kit as gloomy data throws further doubt on the recession-bound eurozone economy.
Many economists are expecting what would largely be a symbolic cut in interest rates. The governing council’s vote is due at 12.45 (BST) and ECB President Mario Draghi will meet the press at half past one.
By Claire Jones and Lindsay Whipp. All times are UK time.
Mark Carney, the incoming governor of the Bank of England, was grilled by MPs and his ECB counterpart Mario Draghi faced awkward questions. By Tom Burgis, Ben Fenton and Lina Saigol in London with contributions from FT correspondents. All times are GMT.
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The Bank of England’s financial (in?)stability report is due out on Thursday. Read more
Martin Weale’s speech today shows how far the policy debate has shifted at the Bank of England. As recently as early July, this external member of the monetary policy committee was voting for higher interest rates. Now he is openly talking about restarting quantitative easing.
Mr Weale should certainly be praised for being as good as his words. In March he said he was perfectly happy to change his mind if the facts changed and he has done so. No longer voting for a rate rise does not indicate a previous error of judgment, only that circumstances have changed.
From his speech today, Mr Weale, one of the more hawkish MPC members, now clearly thinks that UK QE2 might be necessary and he believes it would work. Read more
The first six months of 2011 have been most uncomfortable for the Bank of England. The combination of overshooting of inflation and weakness of growth really brings out the inner-hawks and inner-doves on the Monetary Policy Committee.
Do they react to the rise in price pressures seeming to come from weakness in supply? Do they assume price rises are temporary and respond to what they see as a shortfall in demand? Or do they sit on the fence?
The fence sitters have won the day so far on the MPC. But today’s inflation figures give some ammunition to the doves. The fall in CPI inflation to 4.2 per cent in June (from 4.5 per cent) ensures there was no overshoot in inflation in the second quarter relative to the Bank’s may inflation report.
Much of inflation’s still high level reflects price rises quite a long time ago, so it makes sense to look (below) at a chart of annualised quarter-on-quarter inflation with rudimentary seasonal ajustment to see whether the inflation scare is past.
I drew this chart so blame me if it makes no sense, but it also gives some succour to doves. Read more
Financial markets think Bank of England meetings on monetary policy will be a bore for almost another year. The minutes last week persuaded investors that the Monetary Policy Committee was unlikely to raise interest rates until mid 2012.
Economists are now following in investors’ footsteps with Barclays Capital becoming the latest group of forecasters to push back their forecast of a rate rise from November 2011 to May 2012, arguing that “policy [is] paralysed by domestic double dip” fears.
As I argued in the Financial Times last week, investors have got ahead of themselves a little and the balance on the MPC is rather more delicate. It could easily tip towards a rate increase, particularly if Charlie Bean swung into that camp. Based on their recent words, here is my guide to the MPC members’ views, from the most dovish to the most hawkish.
As you can see, there is quite a delicate balance on the MPC. It could easily tip 5-4 to a rate rise. Getting a majority in favour of QE2 appears much more difficult at present. Read more
All eyes were on the Bank of England minutes of the June Monetary Policy Committee to see whether the replacement of Andrew Sentance with Ben Broadbent would change the balance on the Committee. It did.
Mr Broadbent voted with the majority not to tighten monetary policy, removing one hawkish voice. The Committee is now broadly split 7-2 against tighter monetary policy. Mr Broadbent’s vote was the first dovish tilt apparent in the minutes. Compared with the harsh Mr Sentance, who voted vehemently for rate rises every month most recently seeking a 0.5 percentage point rise, Mr Broadbent is very cuddly indeed.
The second dovish tilt came in paragraph 25. Read more
Charlie Bean, deputy governor of the Bank of England, has been seen as one of the swing voters on the Monetary Policy Committee. If he is one of the people who would have to vote for a rate rise, he does not seem like he is itching to pull the trigger any time soon.
In the speech he has just delivered in Northern Ireland, he thinks the signs of limited supply capacity and poor productivity is nothing more worrying than “puzzling”, he notes that there are persistent output losses after banking crises, is not too concerned about inflation or inflation expectations, but sounds most upset about the weakness in demand at the moment.
Worries about demand weakness with puzzlement about supply is not what constitutes a rate hiker. That rate rise might be on hold a bit longer. Read more
Ben Broadbent, the new member of the Bank of England’s Monetary Policy Committee, is just about to start his confirmation hearing in Parliament (more later). But he will have to deal with today’s inflation figures for April, which have pushed CPI inflation up to 4.5 per cent from 4 per cent in March as shown in the picture.
But though Mr Broadbent did not know the following, he had little need to worry. The April CPI is heavily distorted by the timing of Easter and its effects on air fare prices. Some 0.36 percentage points of the 0.5 percentage point rise in inflation has come from air fares. Read more