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Treasury Committee Hearing – August 2013 Inflation Report

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MPC members Mark Carney, Paul Fisher, David Miles and Ian McCafferty will be giving evidence this morning to the House of Commons Treasury Committee on the August Inflation Report.

They will almost certainly be questioned on the rationale behind forward guidance and the market reaction to it.

It's also highly likely that there will be questions regarding the housing market and the potential for support schemes such as FLS and Help to Buy to destabilise the economy.

No doubt we'll get the usual assurances that the MPC are monitoring these risks in tandem with the Financial Policy Committee, but this meeting could well be a little more combative than normal.

The session starts at 10:00am and will be streamed live via Parliament TV from the link below:

http://www.parliamentlive.tv/Main/Player.aspx?meetingId=13816

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HSBC has said this morning that the rise in gilt yields is "overdone" and will fall back from 3% to 2%.

Presumably they think talk of recovery is overdone too? The 1% wage inflation print from yesterday was hardly encouraging. I suspect that without H2B the UK would be in recession again right now.

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Carney being pressed by Tyrie as to whether forward guidance has tightened or loosened policy.

Carney won't directly answer the question. He's been arguing that a steeper yield curve is indicative of looser policy and therefore forward guidance hasn't had the opposite effect to that intended.

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Pat McFadden asks about housing and dangers of bubble.

Carney says it's basically the FPC's job to monitor risks of this nature and would expect action to be taken outside the MPC's setting of monetary policy if rising house prices became a risk (guidance on LTV, LTI etc.).

He isn't as open and transparent as Mervyn King. Very polite, but non-committal too.

He's more like Bernanke in front of committees. It looks as though these meetings are going to become a bit of a bore (yeah, I know they were never that exciting, but Merv would always say something provocative).

It was also better in the old days when only a few of us watched these meetings. Too high profile now.

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The DMO auctioned £3.75bn of 2.25% Treasury gilt this morning (this is the benchmark 10-year gilt).

The average yield was 2.976% at a bid-to-cover of 1.59 and yield tail of 0.4.

Pretty sure if this is same as US bond sales that a Bond to Cover ratio needs to be above 2 to mean that all the offers were bid on by private parties, and not auto bought/withdrawn from sale by the DMO. i.e. 1.59 means only 59% of the offers got a bid

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Pretty sure if this is same as US bond sales that a Bond to Cover ratio needs to be above 2 to mean that all the offers were bid on by private parties, and not auto bought/withdrawn from sale by the DMO. i.e. 1.59 means only 59% of the offers got a bid

Not sure that is correct, might be the UK measure is equivalent to US -1

UK measure seen as low at ~1.3 or so, from memory.

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In case you didn't see it yesterday, Asda released a special report to coincide with the five year anniversary of the Asda Income Tracker.

There's a nicely compiled Powerpoint presentation of the results (with a few labelling errors).

Guess who came off worst over the past five years?

  • The younger generation (adults under 30) has been hardest hit – their disposable income is down 4.7% since 2008, equivalent to £200 annually. In contrast the spending power for 30-49 year olds increased 13% over the same period, while those aged 65-74 and 75+ increased 11.9% and 18.5% respectively.
  • The under-30s have seen the fastest average increase in the cost of living of any working age household over the past five years (3.3% a year) compared to 2.5% for 30-49 year olds and 3.1% for 50-64 year olds.

http://your.asda.com/press-centre/squeeze-on-family-finances-set-to-last-another-five-years

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The standard are reporting some comments from Next plc financials or it's chairman that contain warnings of a house price bubble. I think this might be miss reporting as I would be surprised if FTSE100 reports contained this as the quoted comments are strong.

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Mr Carney said not all of the country had seen a recovery in house prices. He stressed that across the nation, house prices in many areas were only at two thirds or three quarters of pre-crisis levels.

"There are big pockets of the country where there has not been any meaningful recovery," he added.

http://www.bbc.co.uk...siness-24060130

Really..? FFS. We're totally done for with this house price recovery theme they're pushing. House prices in my area are mostly way above 2007. No way for younger senior professionals to buy (on £40K each, and busting a gut to keep earning that), without taking huge debt (HTB2 style... £340K for a semi to raise a family in any half-decent area), with so many older owners owning outright.

iPlayer on it too, but I can't stand to watch it myself right now. Edit: Urghh. Watched it: "Improvement in prices and activity."

Edited by Venger

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HSBC has said this morning that the rise in gilt yields is "overdone" and will fall back from 3% to 2%.

Business news and markets: live

Mark Carney has warned that the Bank of England that must be "vigilant" about the two-speed housing recovery in the UK, with "pockets of the country" still seeing no improvement in property prices, as he faced a tough grilling from MPs.

12 Sep 2013

TradeDesk_Steve Steve Collins : HSBC - says GILT move is overdone - sees UK yields fall from 3 to 2%. About five hours ago via TweetDeck

http://www.telegraph.co.uk/finance/business-news-markets-live/10303681/Business-news-and-markets-live.html

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http://www.bbc.co.uk...siness-24060130

Really..? FFS. We're totally done for with this house price recovery theme they're pushing. House prices in my area are mostly way above 2007. No way for younger senior professionals to buy (on £40K each, and busting a gut to keep earning that), without taking huge debt (HTB2 style... £340K for a semi to raise a family in any half-decent area), with so many older owners owning outright.

iPlayer on it too, but I can't stand to watch it myself right now. Edit: Urghh. Watched it: "Improvement in prices and activity."

The Neoclassical Synthesis of maximisation and equilibrium that Carney believes best describes the behaviour of the macroeconomy and its representative-agents contains no debt variable. The role of money and banks has been abstracted away. Debt is simply a transfer of spending power from one agent to another. House prices and lending multiples rise and fall as agents modify their appetite for risk.

Mad as a box of frogs.

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http://www.bbc.co.uk...siness-24060130

Really..? FFS. We're totally done for with this house price recovery theme they're pushing. House prices in my area are mostly way above 2007. No way for younger senior professionals to buy (on £40K each, and busting a gut to keep earning that), without taking huge debt (HTB2 style... £340K for a semi to raise a family in any half-decent area), with so many older owners owning outright.

iPlayer on it too, but I can't stand to watch it myself right now. Edit: Urghh. Watched it: "Improvement in prices and activity."

It was ambiguous phrasing for sure and it threw me when he said it.

IIRC he said mortgage applications were down on pre-crisis levels and also valuations, and then went on to say that 'they' were down by two-thirds to three quarters.

I think the 'they' he was referring to was applications, not prices - but you could certainly parse it as both.

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Bit of a disconnect here:

11.43 Moving on to the housing market now and Carney is asked about the two-speed recovery seen in the UK - London and the rest.

Carney says there has been an improvement in prices and activity.

But we do need to be vigilant about [the two-speed recovery], but there is also the need to look at the starting point and the are pockets of the country where there hasn't been an improvement in house prices.

11.56 On to household debt now.

Carney says it has improved over the past five years, largely a 30 percentage points improvement relative to income, "so there has been progress".

If improvement in house prices means an increase, then surely improvement in household debt means the same. Right Mr C?

Q

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Perhaps the most telling moment this morning was when Mark Garnier asked Carney whether a significant number of households were going to be strained when interest rates eventually rise.

Carney said the short answer was: YES.

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It's not as if we didn't know his m.o.. He left behind arguably the world's biggest housing bubble in Canada.

What were the odds he'd try a different approach over here?

13226932_13715726136065_0_thumb.jpg

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