Here's the latest from our Highly Placed Professional.
'The implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy'.
Yes, I too made a double-take and gasped for breath as I tried to employ Vulcan-like logic to decipher this impenetrable prose. I think the translation is that he thinks that rates aren't going up any time soon as the UK economy is up sh.t creek. And we will have to wait until August to find out what guidance he will be giving the MPC for future interest rate decisions.
The fact is, of course, that we market pros know that there's only one way for official interest rates to go - and that is down or unchanged. It doesn't take a highly qualified BoE Governor earning some £850,000 a year to tell most of us that the extra debt servicing costs, which a series of rate hikes would entail, would be the last nail in the coffin for UK public finances, let alone our ropey flat-lining economy. So why has the Gilt market rallied a bit, I hear you ask ? Isn't this good news at the end of the day ?
Well, since the dreaded confirmation that the Federal Reserve was going to 'taper' off its Quantitative Easing - QE - the markets have been in a real slump. The global economy is dependent on stimulus, zero interest rates, and pretty much free money. The question is how much the power of words, rather than deeds, can continue to keep the illusion of life support alive as it is gradually withdrawn. And will Carney, Bernanke and Draghi's dubious credibility end up being shattered after an extended period of zero growth and inflation mysteriously rising to 3.5% or thereabouts ?
In the meantime, any hint that rates are staying where they are or going lower is solace to the nerve-jangle traders on the Street. Hence the mini bounce-back in Gilts.
image: © Bloomberg
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