I spent 10 years writing about central banks for a living. The most useful thing I learned was how little most of what I wrote mattered six months later.
The Bank of England’s Monetary Policy Committee meets eight times a year. Each meeting brings a decision, a set of minutes, a vote split and, four times a year, a full forecast. Each one moves markets. Gilt yields can shift by a tenth of a percentage point in an afternoon on a single phrase in the minutes, and then shift back within a week.
For an investor, that creates a temptation: to treat each meeting as a reason to act. We think that temptation is expensive. Trading costs money. It also takes time away from the work that drives returns over the long run, which is understanding the businesses and borrowers we lend to and own.
So we take a different approach, in three parts.
First, we decide ranges in advance. In the Short-Dated Sterling Credit Strategy, duration can move between one and three years. Within that range, the portfolio manager adjusts as conditions change. Over the past 18 months duration has moved twice, from 2.4 down to 1.7 years and then back up to 2.1, each time after a change in our view of where inflation was heading, not after a single meeting.
Second, we watch what changes the committee’s mind, not what it says. Services inflation and pay growth have driven the Bank’s decisions for the past three years. If they move decisively, policy will follow. A change of tone in a speech, without a change in the numbers, rarely lasts.
Third, we ask what is already in the price. By the time a cut is announced, markets have usually priced it for weeks. Acting on the announcement means buying what everyone else already owns.
None of this means ignoring central banks. They set the price of money, and that touches every asset we hold. It means listening carefully and changing course only when the evidence, not the commentary, says we should.
This article reflects the author’s views on the date of publication. It is not investment advice or a recommendation to buy or sell any security. Capital is at risk and past performance is not a guide to future returns.