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BoE Rate Decision this Thursday: "see one, do one, teach one"

01-Aug-2016

It’s tough training to be a doctor. There’s the sheer volume of stuff you need to know, the famously long hours worked by junior doctors, and the ever-present knowledge that a mistake could have grave consequences – one medicine lecturer I knew used to slap his forehead and exclaim “Doh! You killed another patient!” when a student gave him the wrong answer to a question.

It’s particularly tough training to be a surgeon, because it’s hard to practise. You can use cadavers of course, but it’s not the same (they don’t bleed for a start). Ultimately, surgery is a skill that is learned on the job – a process colloquially called “see one, do one, teach one” – meaning that for some less frequent surgical procedures it was possible for doctors to only observe a procedure before performing it themselves, and then only perform it a few times before being expected to teach and supervise others.

As it is with medicine, so it is with monetary policy. The longest-serving member of the Bank of England’s Monetary Policy Committee is Dr Martin Weale. He joined the MPC in August 2010, a year after the BoE lowered rates to 0.5%, where they have remained ever since. I’m pretty sure Dr Weale is not a doctor of medicine but it appears that ‘see one, do one, teach one’ applies to other doctors too. This week’s meeting will be Dr Weale’s last as his term expires soon. Last week he changed his interest rate view so that he now favours a cut in rates. A little bit of me wonders if he changed his mind just so he can have at least one ride on the rate change machine before he leaves – having seen rate moves as Director of the National Institute of Economic and Social Research prior to joining the MPC, maybe he wants to “do one” at the MPC before returning to academia and “teaching one”. Where’s the fun of being on the MPC for six years if you never actually changed rates?

In fact, looking at the rest of the MPC, none of them have ever changed UK interest rates, prompting speculation in some quarters that they have simply forgotten how to, or the machinery has fallen into disrepair. All is not lost however, there is one member of the MPC who has had lots of practice cutting rates – Dr Mark Carney (another doctor!) cut rates from 3.5% to 0.25% as Governor of the Bank of Canada. It might not be that simple though – even if Governor Carney bought his own Interest-Rate-Change-o-Matic machine with him from Canada, the UK has different plug sockets and voltage standards compared to Canada so it might not even work over here.

The wider markets don’t seem to share my practical concerns. According to Bloomberg there is a 98.2% chance of an interest rate cut this Thursday. Many economists are also expecting other stimulus measures such as in increase in the Funding for Lending scheme or even re-starting QE bond buying. I am neither a doctor nor an economist and I can’t pretend to know what the MPC will announce on Thursday. However I can say that it’s going to be very closely watched by the currency markets and I would expect to see significant market moves, depending on what the MPC decide (or are able) to do.

Mark Stafford

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