Carney’s countdown to BOE rate hike faces crunch week

Bloomberg

Mark Carney is heading into a crucial week in the countdown to a possible Bank of England (BOE) rate increase in early November.
After the International Monetary Fund (IMF) meetings where most central bankers fretted about weak inflation even amid robust global growth, the governor returns to an economy that’s almost the mirror opposite. While Brexit is weighing on UK businesses, price growth is above target — something for lawmakers to press him on at a hearing on Tuesday.
In Washington last week, Carney stuck to the Monetary Policy Committee’s line that a rate increase would be appropriate in the “coming months,” echoing the message the BOE has been sending since September but declining to be any more specific. This week’s release of inflation, wage and
retail figures could help him
determine the exact timing.
“The data is going to be everything in terms of getting the message across that a rate hike is justified,” said Peter Dixon, an economist at Commerzbank AG. If there’s “higher inflation and strongish retail sales, it would be very difficult not to raise.”
The BOE’s new tone means it’s joining the US Federal Reserve in what’s becoming a global central bank shift away — albeit very slowly — from the ever-more loosening that’s defined policy since the financial crisis. The Fed may raise its key rate again in December, the European Central Bank is debating how and when to scale back its bond purchases, and some lawmakers are pressuring the Bank of Japan to discuss unwinding its own easing programme.
At the BOE, the latest UK numbers — forecast to show inflation at a five-year high of 3 percent — will be crunched by staff economists as they prepare the projections that hugely influence the MPC’s deliberations. Officials will also have to take into account the impact of the nation’s looming departure from the EU.
Last week, the IMF said the U.K. was the “notable exception” as it upgraded its global outlook. It sees the British economy expanding 1.7 percent this year, which would be the slowest since 2012, and just 1.5 percent in 2018. But weaker growth has coincided with a hit to potential output, which has inflation ramifications.