Bank of England

April 10, 2014

There’s not much to say about this month’s Bank of England monetary policy meeting, which ended with the release of a statement that divulged no useful background information on the decision to extend policy settings and redirected the public to meeting minutes, which will be released April 23rd for any fresh insights.  The Bank Rate has been at 0.5% since a cut in March 2009, when a program of quantitative easing was introduced as well.  The size of asset buying was last increased  in July 2012.  The incremental extension of the ceiling at that time was GBP 50 billion, and the new GBP 375 billion level was reached four months later in November 2012.  Forward guidance was introduced in August 2013 with a 7.0% unemployment threshold but significantly modified by the central bank’s Monetary Policy Committee  in February of this year as follows:

The MPC sets policy to achieve the 2% inflation target, and, subject to that, to support the Government’s economic policies, including those for growth and employment. Despite the sharp fall in unemployment, there remains scope to absorb spare capacity further before raising Bank Rate. When Bank Rate does begin to rise, the appropriate path so as to eliminate slack over the next two to three years and keep inflation close to the target is expected to be gradual. The actual path of Bank Rate over the next few years will, however, depend on economic developments. Even when the economy has returned to normal levels of capacity and inflation is close to the target, the appropriate level of Bank Rate is likely to be materially below the 5% level set on average by the Committee prior to the financial crisis. The MPC intends to maintain the stock of purchased assets at least until the first rise in Bank Rate. Monetary policy may have a role to play in mitigating risks to financial stability, but only as a last line of defence if those risks cannot be contained by the substantial range of policy actions available to the Financial Policy Committee and other regulatory authorities.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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