Bank of England Cut Growth ForecastFebruary 5, 2016 12:53 pm
Bank of England Cut Growth Forecast as MPC vote 9 – 0 to hold rates
TGIF – Thank God It’s Friday – a sentiment we are all no doubt thinking, some more fervently than others. One of those others is probably Mark Carney, the Governor of the Bank of England. Commuting into town this morning, the tube was stuck between Caledonian Road and Kings Cross St. Pancras and I was trying to place myself as Carney or Yellen and what it would be like to have such responsibilities. Arguably, they are to a degree, mouth-pieces on behalf of a team of analysts, board-members and researchers who advise after having completed copious amounts of analysis on the economy. But ultimately it falls on them. They are the driver on the train and have to create reassurance that they can see the light at the end of the tunnel.
Unfortunately everybody on the train is tired of hearing the same old, “we have signal failure/we are having to stop to regulate the service”. The Bank of England have cut the growth forecast from 2.5% to 2.2% and the only hawk on the MPC (Ian McCafferty) who usually votes for a hike, has suddenly changed tack. So where does that leave us?
Growth Forecast will be subdued this year
Overall the conductor is assured the train is still going to reach the destination. With the persistence of low inflation, the consistently strong dollar (although that could well falter), what looks like a continuation of lower demand in China and the Bank of Japan’s decision to hold negative interest rates, the light and the end of the tunnel is disappearing. In the US, commentators are increasingly critical about the FED rates rise and whether it was too soon. So much so that every piece of economic news is under the microscope – this week’s Nonfarm Payrolls is the incumbent of this scrutiny and it is unlikely to dampen the negative sentiment, as news has been leaked of weak data.
So where does this leave gold? As is the way, Gold is vilified in one breath and canonised in the other. The problem with the world nowadays is that with advancements, we all have debit cards, statements are online and nothing exists. When the going is good, owning nothing physical or existent matters. But when things start unravelling, our innate nature as humans to seek security, we look to things like gold. Gold is a constant. Yes it fluctuates as with all markets – but it’s greatest value lies in its uncompromising physical matter – it is an entity with no agenda. The equities market, although based on a list of existing companies, is in essence just a tool for leveraging capital and crystallising an agenda for a company that has something to gain. When and if the equities markets depreciate – as has begun to happen, it is the common investors that lose value, the companies do not. They will still operate and continue to trade – they may have to review operations but usually they keep trading. If the recession taught me anything, the equities market whilst useful for generating income for a while, is devoid of reality and some people are too big to fail – the banks for example. It doesn’t feel like we’ve learnt anything.
With the cut in growth forecast, it makes me feel like we are stuck on this never-ending train. There is no final stop and we can’t get off. There is too much invested and too much at stake and some people are too big to fail. It isn’t going to harm the big corporations that much, they might have to cut a dividend and restructure operations but in the end it is the investors that don’t have the inside track that suffer. Gold is a safety. It has neither feeling or device, it simply reacts to economic climate, the greed and the smoke and mirrors published from companies and banks to keep the money in the system. It is, in my opinion one of only true reactors to the systemic failure. Next stop, cyclical global recession?
On that note Happy Friday!
Article by Michael Cooper