The Bank of England's top policymakers and Westminster parliamentarians are expected to discuss the prospects for UK monetary policy amid elevated uncertainty surrounding the Scottish referendum, and the geopolitical crisis in Eastern Europe.
Bank of England (BoE) Governor Mark Carney, board newcomer Nemat Shafik, policy dissenter Martin Weale, and Professor David Miles will appear on Wednesday in Portcullis House in London to answer questions from parliamentarians on the Treasury Select Committee (TSC). A piquant moment is possibly on the cards.
The TSC Inflation Report hearing is expected to focus on the latest round of forecasts and the BoE's appropriate response to the ongoing economic and political circumstances.
Speaking at the 146th Annual Trades Union Congress in Liverpool on Tuesday, Governor Mark Carney said market expectations of the first rate hike by spring next year fits the central bank's estimate for the medium-term inflation outlook to settle at around 2%.
Carney also said the UK economic recovery has momentum, but significantly weak wages and remaining slack in the labor market do not bode well with premature increases of interest rates. The governor also reiterated that once the rates begin to rise, increases will be gradual and slow and dependent on labor market data such as earnings and slack.
The wage growth and labor market slack conundrum should be discussed on Wednesday and market participants may learn more about the thinking and the sentiment among the nine-member rate-setting committee ahead of the Monetary Policy Committee (MPC) minutes due on September 17.
It might also be interesting to hear any comments by Martin Weale, one of the two dissenters at the MPC in August, who together with Ian McCafferty, voted for an immediate 25bp rate hike. Some economists suggest the duo might have kept their stance at the September MPC meeting as well. The September MPC minutes will offer more detailed information on the voting pattern.
Nemat Shafik, a new member at the MPC, should also shed more light on her sentiment at the MPC round-table. David Miles, the fourth MPC member to answer TSC questions and one who is considered at the dovish end of the MPC, said recently there was not an urgency to tighten policy due to subdued inflation.
The Scottish independence referendum and the increasing support for the 'yes' camp may also spin the debate and the consequent monetary response.
When asked about the currency issue during the August Inflation Report press conference, Governor Carney said policymakers have contingency plans whatever the outcome of the referendum. Carney also said the BoE "have responsibilities for financial stability in the UK [and] we will continue to discharge those responsibilities until they change. We'll continue to discharge those responsibilities regardless of the outcome of the vote on September 18."
Commenting today on Carney's speech in Liverpool on Tuesday, IHS Global Insight's Howard Archer said "any BoE hiking of interest rates could be significantly affected if the Scots vote for independence on 18 September and the ensuing uncertainty and likely market volatility weighs down markedly on the recovery."
More piquant questions on rumors surrounding Carney's purported pact with UK Chancellor George Osborne should also resonate on Wednesday in the Grimond Room at Portcullis House in London.
John Mann, a Labour Party MP and a member of the TSC, was reported to have said back in August that "it was abundantly clear that Mark Carney is attempting to delay interest rate increases until after the election when they rise immediately."
The next general election is taking place in May next year and therefore it may be more than prudent to see if MP Mann follows up on his previous comments.
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