No follow through

Unlike the Bank of Canada (BOC) which he headed from 2008-2013, now Bank of England (BOE) governor Mark Carney didn't follow through on the remarks he made at the European Central Bank Forum in Portugal that, "Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen..."

The BOE's announced no change in monetary policy at its 3 August meeting -- - the first since Carney made the statement in late June.

The British central bank's monetary policy summary statement revealed its continued worry over above target inflation - headline at 2.6% in June; core at 2.4% -- brought about by sterling's depreciation and that "some tightening of monetary policy would be required to achieve a sustainable return of inflation to the target" but it also

However, the BOE is equally concerned that, "Attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth".

Not to mention on overall GDP growth - which in the latest 'Quarterly Inflation Report' (QIR) the BOE revised lower to 1.7% (from 1.9% in the May QIR) this year and 1.6% (from 1.7%) in 2018.

Sterling's effective exchange rate has fallen by 1.3% this year to date and 13.1% since the 23 June 2016 Brexit referendum - down 12.0% against the US dollar; 15.4% versus the euro; and, down 7.8% vis-a-vis the Japanese yen since Brexit.

The weaker pound has undoubtedly pushed up inflation but it is also shoring up domestic activity. This is underscored by the Markit/CIPS PMI survey indices - composite, manufacturing and services -- which, despite lingering Brexit uncertainties, have remained sharply above the 50 expansion/contraction line for 12 months running. One that's also underlined by continued gains in the FTSE-100 index - up 5.2% this year to date and 18.5% since the Brexit referendum.

All good ... except for wages. For despite low levels of unemployment, wages growth remains sluggish. Average weekly earnings excluding bonuses grew by 2.0% in the year to May. This translates to negative real wage growth whatever measure of CPI inflation is used.

The consequence of this negative real wage growth has been documented in the 'IHS Markit Household Finance Index - United Kingdom' report for July.

The key points of which are: UK household record sharpest downturn in household finances since July 2014; Appetite for spending on major purchases drops at steepest pace since December 2013; Job security declines again in July, while pay growth remains only marginal.

Enough reasons why Mark Carney didn't do a BOC.

Read more: BOEBrexitMark CarneyMay QIRBank of CanadaBank of EnglandBank ForumIHS Markit Household Finance IndexInflation ReportMarkit/CIPS PMIUnited Kingdom
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