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The MPC is set to maintain the stance of monetary policy at its September meeting on Thursday. The committee currently judges that current monetary conditions, plus the interest rate guidance introduced earlier this month, will foster the appropriate economic conditions to meet the inflation target.
August’s CPI inflation figures were on consensus, edging down to 2.7% (Investec forecast also 2.7%) from 2.8% in July, with few categories having a major effect on the figures. The primary downward influences were clothing and petrol prices, with both groups showing monthly increases which were more modest than in August last year. These offset upward influences from areas such furniture and food.
Mark Carney’s first MPC meeting may have been unremarkable in terms of the headline policy announcement, as the committee kept the stance of policy unchanged, as expected. The asset purchase target has stood at £375bn for a year now, while the Bank rate has been at its record low of 0.5% since March 2009.
Market sentiment next week will be shaped by the tone of November’s US jobs report (due for release soon after the time of writing), with a risk that tapering concerns intensify ahead of the 18 December FOMC meeting. However our judgement continues to be that there is insufficient evidence that the economic recovery has ‘standalone’ momentum, particularly given the mixed evidence surrounding the housing market. Hence we view a December taper to be off the cards and still favour March. The biggest economic release from the US next week is set to be November’s retail sales, due on Thursday.
November’s data showed that non-farm payrolls rose by 203k, moderately firmer than consensus estimates of +185k.
In Sir Mervyn King’s 194th and final MPC meeting, the committee held the stance of policy steady as expected, maintaining both the asset purchase target at £375bn and the Bank rate at 0.5%.
We start this week’s Weekly by arguing that in the context of the markets’ recent response to the Fed, that the situation is not analogous with 1994.#
United States - Bernanke’s recent Fed press conference words, in which he gave a steer on the likely timing of QE3 tapering and shut-down, have widely been viewed as indicating the Fed is shifting towards a tighter policy world, pushing Treasury yields up sharply and knocking risk sentiment.
Chancellor George Osborne presented his latest spending review today, termed Spending Round 2013 (SR 2013), covering the year 2015/16. The aggregate figure or ‘envelope’ for the widest measure of public spending (Total Managed Expenditure or TME) in 2015/16 was set at £745bn in the Budget in March and this has not changed. The purpose of the review therefore was to set out some details on how this will be achieved through allocating the available funds across various departments.