Governor Carney trumpeted forward guidance, but it just does not work, especially when the BoE keeps changing its mind.
So why exactly am I bored? Put simply, it seems that whichever Bank of England or Treasury official speaks at a conference or dinner, they seem to be espousing a different timeline for the first rate increase. The problem this causes is that it creates an expectation within the market, but with no specific timeline. However, more importantly, the money markets tend to react to this news then relax a few days later. In the interim, this can cause temporary pricing issues in the mortgage market.
We also see a plethora of theorists inputting their knowledge and experience to the debate, but none of them seem to agree on the exact timing. They are all just guesses. All we seem to be doing is creating headlines which have no substance. I understand that at present the economic news is fast moving and there are many far reaching factors that are causing changes in opinion. It is for this exact reason that, in my opinion, forward guidance does not work.
All those headlines and market expectations have not really hit home with the consumer yet. We have seen a small increase in re-mortgaging over the past quarter, but what I have not seen in the data is how many are moving off a lender’s reversion/SVR rate vs how many are just re-mortgaging at the end of their current fixed rate. If it is the latter, then we are not seeing any true movement yet. If we are seeing more exiting their SVR, then this is a positive move, but we need the data.
Do we think that it will only take one rise to make people pick up the telephone? Or will we need two or three rises? Who knows?
So, to end in a time honoured fashion, I will leave you with my prediction for when I expect the first base rate rise so it can be added to all the other commentators. I believe it will be sometime in the future!
