MPC-ometer dovish; adjusted M4 slows further
Simon Ward
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My MPC-ometer suggests several MPC members will join David Blanchflower in seeking a cut in rates this month but will be outvoted by a slim majority in favour of no change.
The model results are consistent with either 5-4 (four votes for a 25 bp cut) or 6-3 (two votes for 25 bp with DB seeking a 50 bp cut).
The forecast is more dovish than market expectations and reflects recent very weak economic news, which has counterbalanced adverse inflationary indicators.
Interestingly, the Sunday Times Shadow MPC result was also dovish this month, with three members voting for an immediate cut and four others with an easing bias.
Meanwhile, annual growth in the Bank of England’s adjusted M4 measure – which excludes money holdings of certain financial corporations that act mainly as a conduit for interbank business – fell further from 8.8% in March to 8.0% in June, according to figures released this morning. This is the lowest since 2004 and compares with an 11.4% annual increase in headline M4 – see chart. Monetary trends now appear to be consistent with inflation returning to target over the medium term. (Post-ERM experience suggests adjusted M4 growth of 6-8% pa is consistent with 2% CPI inflation – see here.)
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