When it actually happened, just before 10am, reactions ranged from blaming the Bank of England for sending misleading signals last week to resigned acceptance that the Bank has a perfect right to wrongfoot the markets.
Gavyn Davies, of Goldman Sachs, the City's top-rated economist, said in his column for the Independent this morning that base rates would be unchanged, almost certainly until November. Mr Davies, who was in honourable company, yesterday blamed the Bank of England for wrongfooting the City.
He said: 'The Treasury is livid with the Bank for fouling this up. At the very minimum the Bank has to agree that its intervention on Thursday made everybody draw the wrong conclusions.'
The intervention he was referring to was part of the Bank's routine dealing in the City money markets the day after the meeting last Wednesday between Kenneth Clarke, the Chancellor, and Eddie George, the governor. Those dealings indicated that rates would remain unchanged until 26 September. That is the day of the next meeting between the Chancellor and the governor.
Mr Davies said the entire market drew the conclusion that a base rate rise would be postponed until then.
Simon Briscoe of Warburg was more phlegmatic. He said 'We are going through a learning process. The management of economic policy has changed substantially in the past two years and our understanding of how it works is still evolving. We all thought one way or another that the decision had been taken on Wednesday.'
Simon Briscoe, economist, Warburg Securities
'It will not be long before rate- rise expectations are pushed into 1995. It is difficult to imagine the Bank Governor arguing the case for a rise until some data show a marked turn for the worse . . . Even if there were a rise in Q4, there will not be a string of them in 1995.'
Weekly Sterling Bond Market Review 9 September 1994
Roger Bootle, chief economist and director of research, HSBC Greenwell
'The Bank's actions in the market last week effectively ruled out any official rate rise until the next Governor/Chancellor meeting on 26 September . . . popular thinking now points to the next opportunity occurring at Budget time.'
Greenwell Gilt Weekly
12 September 1994
Robert Thomas, head of bond and currency strategy, Natwest Markets
'We do not think it will be this month since the news on inflation continues to be extremely good . . .
'In our books, November and 6 per cent remain the most likely answers on timing and extent.'
Natwest Markets, 7 September 1994
John Shepperd, chief
'It looks like it's going to be the same old story on UK inflation . . . More importantly the forward-looking indicators are expected to be impressive as well . . . there is no case for a rise in base rates this year.'
Yamaichi Economic Adviser,
9 September 1994
Bill Martin, chief economist, UBS Global Research
'At their regular monthly meeting on Wednesday, the Chancellor and Bank Governor probably decided to leave base rates unchanged.'
UBS Global Research,
12-18 September 1994
Economist, Goldman Sachs
'Last Wednesday the Chancellor and the Governor of the Bank of England decided to leave base rates unchanged,
almost certainly until November or later.'
12 September 1994.
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