Bank of England treads carefully: Cautious, considered and flexible
These were the themes of Minouche Shafik, Deputy Governor markets and banking at the Bank of England, who chose the Institute of Directors’ grand premises on Pall Mall as the venue for her first major monetary policy speech. With a glowing introduction from Chair Dame Barbara Judge, as always perfectly coiffed and wearing her signature white ruffle-collared blouse, she reminded the media strong audience that this was the young lady who filled in at the IMF for Dominic 
But what caught Trending STA’s eye was her use of charts. Kicking off with data supplied by a leading car tyre fitter based in England’s South East, two simple lines compared the number of customers buying new tyres before the tread dropped below 1.6 millimetres and those waiting until they were below that point. The latter were obviously willing to risk grip and therefore safety in order to save money and their numbers had increased post 2008’s Great Financial Crisis (as some are now calling it). Even more interesting is that the ratio has not subsequently reversed even though unemployment has dropped and wages increased. Approaching a problem from an unusual angle can often lead to fresh insights, something we as technical analysts do instinctively.
Her second chart, which one man thought looked like a deflated tyre, was an interesting way to display multiple data series. It compares trend growth in ten independent economic indicators using the most recent data and comparing it to long term averages; an effort to pinpoint differences between this recovery and those following previous recessions.
Chart 4 was another little gem using data since 1694 when the Bank was established. It compares the size of rate cuts during phases that a looser monetary policy stance was deemed appropriate. Suggesting a 2 per cent cut to Bank Rate gave the economy the biggest boost, she expects this key rate to move up to 2.5 per cent and believes anything close to 5 per cent unlikely even over the very long term. Acknowledging that balance sheet recessions are longer and shallower in their recovery, she also warns that perhaps it’s time to ‘think about the world a little bit differently’.
All in all a refreshing, informal, and genuine attempt to explain her reasoning.
Click here for a copy of the speech and her charts.
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