Bank of England Made No New Policy Moves This Month

December 10, 2009

The Monetary Policy Committee issued a short statement that the Bank Rate is being held at 0.5%, the asset purchase plan total will remain at Gbp 200 billion, and that the total will have been bought within two more months.  The rate has been 0.5% since March, and Gbp 185 billion had been purchased as of December 3.  The asset buying is being funded by the creation of reserves and is quantitative easing.  The program was launched in March with a total of Gbp 75 billion, raised to Gbp 125 billion in May, raised again to Gbp 175 billion in August and raised a third time but less sharply to Gbp 200 billion at November’s meeting.  The impact of the program as a stimulus to bank lending has not been apparent, but officials hope that in time it will. 

Minutes of today’s meeting will be released two days before Christmas.  I expect them to show a unanimous vote.  Today statement from the Bank of England had nothing to say about economic or financial market conditions and prospects.  The next quarterly inflation report is scheduled for February.  A decision will be announced in that month on whether the asset purchase program will be extended for a fourth time.  Sterling continues to trade above $1.60 and near 0.90 against the euro. With very bloated British budget and external deficits, a lame duck government, and comparatively weak economic growth prospects, sterling’s six-month prospects would appear unfavorable in spite of relatively elevated long-term interest rates.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.



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