28 March 2017

The MPC Sweepers

In curling the skill is in brushing the ice just enough to help the stone land in the sweet spot. Too much brushing and the stone will overshoot the target; too little and it might never get there.

by James Godrich

Fund Manager


In the 2002 Winter Olympics in Salt Lake City, Rhona Martin and her team won gold in the women’s curling competition. In curling the skill is in brushing the ice just enough to help the stone land in the sweet spot. Too much brushing and the stone will overshoot the target; too little and it might never get there.

Mark Carney and the Monetary Policy Committee (MPC) have been brushing the ice, through historically low interest rates, since the global financial crisis. With inflation running at 2.3%, and above the targeted 2%, is now the time for some of the sweepers to step aside?

Reflation within the UK economy from cost push sources such as increasing energy prices and the weak sterling has begun. The question now is whether this will be followed by demand pull inflation from growth in GDP, retail spending and a sustained period of wage inflation.

For now the buzzwords for Central Bankers remains, ‘a temporary overshoot.’ This suggests that they are seeing little signs of inflation from demand pull sources and expect inflation to return to below target over the medium term as pressure from cost push sources abates.

To the curling analogy the MPC are looking ahead of the stone’s current momentum and expect continued hard work from the sweepers to be needed to reach the target 2% inflation. The problem here is that any unexpected momentum from demand pull sources alongside help from the MPC sweepers could make the back line and a more serious overshoot look ever more ominous.

Perhaps there are worse candidates than Rhona Martin to take up the recently vacated role on the MPC following Charlotte Hogg’s resignation.


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