The pound slipped back hard after the Bank of England unexpectedly left rates unchanged, and while there was some dissent, with two members voting for a hike, seven of the MPC voted to keep rates unchanged.
This was more surprising given that Governor Andrew Bailey had briefed on more than one occasion in recent weeks that a hike was coming due to rising inflation expectations. This view was reinforced by new chief economist Huw Pill although he did soften those comments a touch, but certainly not by enough to rein in market expectations that the Bank might disappoint either today, or next month.
What was even more dumbfounding was that having set this hare racing a few weeks ago, Bailey voted to keep rates unchanged as well, with the statement also saying that a rate rise was likely in the coming months.
Today’s events are a huge own goal for the central bank, already widely distrusted by the markets due to the unreliable boyfriend era of Mark Carney. Bailey had the opportunity to reset the narrative when he took over and restore the central banks credibility, and he’s completely bodged it in a fashion that is more Bill Bailey than Andrew Bailey.
The least markets can ask for is a central bank that is disciplined on messaging, and this fiasco has shown the banks faults when it comes to forward guidance are still there in plain sight.
It’s going to be a long road back from this, with the pound down sharply and yields also sharply lower, and with no clear idea of when we will get to see this modest increase in rates.
Central banks should shape market expectations and forward guidance, not confound them. Today has been a failure of policy, but at least the FTSE100 is higher. Every cloud.