Minutes of the June meeting of Threadneedle Street's monetary policy committee would, it was hoped, make the Bank's stance clear. Instead, they have simply muddied the waters still further.
Here's how things have unfolded. Back in mid-May, the Bank issued its latest inflation report. Against a backdrop of strong economic data, Mark Carney, delivered a robust defence of the case for keeping borrowing costs on hold.
The Bank wanted to see slack in the economy used up before interest rates were raised. The new financial policy committee was there to deal with potential bubbles in the housing market. Interest rates were a last resort.
So, when Carney stood up to deliver his Mansion House speech last Thursday, the City thought there was an 8% of a rate increase by November and an 18% chance of a rise by December. The governor then dropped a bombshell. Although there appeared to have been little economic news of great significance in the intervening month – strong job growth balanced by extremely weak wage data – Carney said borrowing costs could go up sooner than the markets expected.
By Friday morning, the chances of a November rate rise were up to 64% and chances of them going up by December were at 94%. Sterling also strengthened on the foreign exchanges in anticipation of an early move.
There was a lot of head scratching but the City fully expected all to become clear with the release of the MPC minutes. Surely, traders said, at least one of the MPC's members must have voted for rates to go up and that would explain Carney's change of tack.
But while the minutes echo Carney's speech in expressing surprise that financial markets are not taking a rate rise this year more seriously, there was nothing earth shattering in them: no dissenting voices; no suggestions that an MPC member was even considering voting for higher rates.
What then has the last week told us? In terms of monetary policy, not a lot. Rates could be going up this year. On the other hand, they could be going up next year. What is apparent is that the Bank's communication strategy leaves a lot to be desired. Forward guidance was supposed to provide clarity, but as one City analyst put it: "If the Mansion House speech marked the death of forward guidance, the minutes were the day forward guidance was buried."
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