Today was one of those rare days when London-based foreign exchange dealers could smile as the the pound rallied against other currencies. This was in reaction to the news that the Bank of England's Monetary Policy Committee (MPC) had voted 9-0 earlier this month not to pump yet more cash into the UK economy. The MPC also voted unanimously to maintain the Repo Rate at 0.5%. The markets took the decision not to inject more money as a positive sign that the economy was now in a recovery stage and it did not need any further boost from the central bank. The Bank of England might even fear that a further injection of cash at this stage might even lead to a significant rise in inflation at some stage in 2010.
The MPC members agreed not to extend its £175bn programme of quantitative easing (QE), but would keep it "under review" in coming months. The MPC stated that QE had had a "substantial" impact, but all members agreed that "recent developments were not sufficiently compelling to justify revising the target level of asset purchases that had been agreed in August".
Oct 21, 2009
The Bank of England's Monetary Policy Committee says everythings just wonderful!
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I think the Bank of England is making a good decision i mean the main aim of quantitative easing is to generate movement in the economy it dosent want to go into inflation by accidently putting too much would it be fair to say they are to optimistic I dont think they are too optimistic a brief look at the latest minutes do show signs of positive developments but there are aspects of the minutes which also highlight caution in certain areas they dont fully discount the bad news but they do seem to predict of a more positive future for the economy if we look at the US Federal Reserve and look at their september minutes they believe that the us economy is sluggish and they hope to maintain growth but they do identify the big issues in the US economy i suppose this makes the bank of england look quite optimistic of course the next fed reserve minutes may paint a different picture in the future but i suppose comparing the two is unfair due to the fact the UK and the US are two different economys but generally recovery in one big economy can also mean recovery in another but how the central bank reacts to that recovery will not always be the same as how another reacts to the economy and thats the key factor is one bank to prudent or is another too optimistic only time will tell.
"Pound hit by fears of prolonged recession"
Front page article in Financial Times (October 24th/25th 2009) highlights the fact that recession in UK is not finished yet. A 5.9% drop in output gives fear that UK is struggling to recover from its longest recesion.It is expected by investores that Bank of England will inject more money into economy.Programme of "quantitative easing" which is expected to pump £175bn into economy and also interest rates which are expected to be freeze at 0.5 for the whole 2010 year should increase consumers spending.
In my opinion, MPC was right not to pump money in the economy, and also bank of England have the right to fear about the inflation in 2010. I think there is nothing more to add, however I think the stances adopted by the various organisations was good for the economy.
In the MPC meeting took place in the first week of November showing that the MPC is keeping the interest rate at 0.5% and increasing its size of Asset Purchase Programme to 200 billion. As the QE is being kept under review, the decision of the MPC is to increase it more as to keep the inflation on the track to meet 2% inflation target. Moreover, there is sign of recovery but the financial conditions still remain fragile and there is a fear of double dip recession as the certainty of the recovery is still unclear, for the UK and globally. Therefore, MPC must be cautious for the time being.
From the FT today (24/11/2009) that it also mentioned that most of the world's big economies has officially out of recession but it still leave its scars. The output lost as a result of crisis is permanent even though economic growth generally has reached its pre-crisis rate.
Bank of England’s monetary policy committee have after a long time encountered some positive predictions. In their most recent meeting they discussed the signs of recovery, and the increase in growth of the economy. This is reflected by the rise in asset prices, since spring. The asset purchase programme has been finalised issuance of central bank reserves to 200 billion. Maintaining inflation rate at 0.5%, a sudden rise may result in a double dip recession.
Households have reduced their spending and business investment has fallen especially sharply. GDP continued to fall in the third quarter. But a gradual increase has been identified. So another improvement in the economic conditions; based on the discussions are their conclusions I think its very likely the economic will have recovered by mid next year.
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