Bank of England: No Further Change this Month

August 2, 2012

The Bank of England in June embarked on a 3-month GBP 50 billion expansion of its asset purchase plan to GBP 375 and did not make any further policy changes today.  A new quarterly Inflation Report on August 9 and minutes of this week’s meeting out August 15 will provide background to today’s decision.  As per custom, today’s statement shed no light on such. 

The U.K. is experiencing a recession that is already three quarters old and intensifying. So more monetary easing seems inevitable before long.  Real GDP sank 2.8% at an annualized rate in the second quarter and by 0.8% between 2Q11 and 2Q12.  The manufacturing purchasing managers index printed at 45.4 in July, down from a second-quarter average score of 48.3, and the construction PMI was 50.9 last month, down from 52.8 on average in 2Q.  Consumer confidence remains pinned at a depressed reading of minus 29, and the CBI survey of distributive industries took a big turn for the worse in July, falling by 31 points to a reading of 11.  Mortgage approvals are lower, and house prices according to the latest Nationwide gauge fell 2.6% over the past year.  Consumer price inflation, which for so long had been sticky, is now receding quite quickly; such is 2.4% overall and 2.1% on core items. 

Minutes from the June meeting of the central bank’s Monetary Policy Committee revealed two dissents against the latest round of quantitative easing cast by Dale and Broadbent in a 7-2 vote but also highlighted that the majority had considered raising the asset purchase plan by a larger GBP 75 billion to GBP 400 billion.  The present APP limit will be reached in September.  The Bank of England’s key interest rate has been at 0.50% since March 2009, when it shifted to a quantitative easing strategy.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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