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No Change In Monetary Policy

Published 04/05/2013, 07:42 AM
Updated 03/09/2019, 08:30 AM
Following today’s Monetary Policy Committee meeting, the Bank of England maintained its official rate at 0.5% and the amount of asset purchases at 375£ billion. However it may increase the amount of asset purchases from this summer onwards.

Following today’s Monetary Policy Committee meeting, the Bank of England maintained its official lending rate at 0.5%, unchanged since March 2009. The stock of asset purchases is maintained at 375£ billion. The minutes of the meeting will be published on 17 April. Despite this status quo, a more accommodative monetary policy may take place in the coming months.

At the occasion of the 2013 budget statement of 20 March, the government noted that the 2% inflation target remained the BoE’s primary target. It nevertheless offered more flexibility to the BoE to pursue an accommodative policy until the economic situation has significantly improved. It asked the BoE clearly explain the reasoning behind its decisions and to define objectives such as thresholds as the unemployment rate. The BoE should only pursue a more accommodative monetary policy from this summer onwards, as it must consider the effects of such measures on the British economy and make proposals in these areas in its August Inflation Report.

A more accommodative policy should be necessary. According surveys (PMI, CE), growth prospects for the early part of this year look pretty glum. We also expect that GDP will grow by only 0.7% in 2013 (after +0.3% in 2012). Consumer spending is likely to slow due to falling purchasing power. The unemployment rate has been stable up until recently (at 7.8%, its lowest since the end of 2011), but the deterioration is becoming visible. In January, the number of jobseekers rose for the first time since one year, up 6,000 to 2.52 million, whilst wages (excluding bonuses) were up by just 1% over a year. Moreover the UK also continues to suffer from the weakness of the eurozone. It is however not easy to assess the likely impacts of a new monetary relaxation on economic activity. The BoE’s previous measures however seem to have allowed a reduction in the cost of bank refinancing and in certain other interest rates, with fixed-rate mortgages falling by around 57bp since last summer. Lending to households also rose by 0.9% in February. Loans to companies contracted by 2.5% in the year to February, but they could have contracted even more without these easing measures.

BY Catherine STEPHAN

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