No member of the Committee thought there was enough information ‘to make a persuasive case for a reduction’ at this point but the fact that such a decision was considered at a time when the market remains quite so tight is significant.
Not surprisingly, the money market rallied sharply on the back of these comments. The December 2005 short sterling contract is once again envisaging no change in policy over the next twelve months having recently begun to flirt, once again, with the possibility of a further rate hike.
It is noteworthy that, at a time when the official data and much survey material is pointing in opposite directions, the Bank’s regional Agents are giving the impression of a generally subdued business environment. Interestingly, the minutes also suggest that a key reason for the dovish tone at the meeting was a weaker international environment.
Whether this will be quite such an influence when the Bank next meets is more questionable. Much of the economic news flow during December, not just in the US but also in the Eurozone and Japan, has been positive.
Revised business investment figures for the third quarter were also released this morning. They suggest that the profile for capex has been rather less volatile over the past year than previously estimated. In particular, the increase in spending in Q3 has been raised from 0.1% to 1.0% but the number for the second quarter has been cut from 2.6 to 1.2%.
Manufacturing investment has been revised upwards in a modest way (in Q3) and is now posting a 12% year-on-year gain (compared with 9.5% previously). Even so, the quarteron-quarter comparison was down 1.6%.
The new profile for business investment raises the possibility that the latest estimate GDP growth for the third quarter (published tomorrow) could be raised from 0.4 to 0.5%.
Despite the tone to the MPC’s minutes we still believe the risks to the current level of base rates are skewed on the upside. A better run of overseas economic data allied to more positive news from the high street could quickly shift sentiment.