BoE hold interest rates at 0.5% : Expert views on colourful Carney

4th July 2013

The Bank of England Monetary Policy Committee in its first monthly vote under new boss Mark Carney has today maintained interest rates at 0.5 per cent and its quantitative easing programme at £375 billion writes Philip Scott.

Since the May Inflation Report, market interest rates have risen sharply internationally and asset prices have been volatile. In the UK there have been further signs of a recovery, although it remains weak by historical standards and a degree of slack is expected to persist for some time.

Twelve-month CPI inflation rose to 2.7 per cent in May and is set to rise further in the near term. Further out, the BoE believes inflation should fall back towards the 2 per cent target as external price pressures fade and a revival in productivity growth curbs domestic cost pressures.

Howard Archer, chief UK & European economist at IHS Global Insight says: “While the first MPC meeting under Mark Carney’s Governorship brought no change in monetary policy, it does appear that the committee are already moving towards more communication on their decisions and towards providing forward guidance on monetary policy. Significantly, the MPC issued a brief statement  explaining their decision to sit tight on QE and interest rates, which was an unusual occurrence under Sir Mervyn King when policy was left unchanged.

“There have been high expectation that the Bank of England will adopt the policy of providing move towards forward guidance on monetary policy, especially as Mr. Carney is keen on this approach. With gilt yields having recently been sent significantly higher amid increased global financial market turmoil, the MPC likely felt it was a good move to make it clear at an early stage that any tightening in UK monetary policy is a considerable was off.

“All eyes will now be on the minutes of the July MPC meeting with the million dollar question being as to how did Mark Carney vote on quantitative easing? And if he was in favour of more QE, are there signs that he is getting other MPC members to come round to that view as well?”

Analysing the implications for sterling, Jason Gaywood, director of corporate services at foreign currency specialists at HiFX said: “Mark Carney wasted no time in stamping his authority as the new Governor of the Bank of England by providing far more content and colour alongside the monthly release of the Monetary Policy Committee’s decision on interest rates and quantitative easing.

“Traditionally, little information around the MPC’s thinking was shared until two weeks after the meeting when the minutes were released. In a break from tradition, Carney has flooded the Bank of England website with the reasoning behind maintaining the current level of QE and the holding of UK interest rates at 0.5% .

“It would appear that, despite signs of a broad recovery with several surveys showing increased business optimism coupled with the news that house prices are on the up to the tune of 3.7% since the same period in 2012, the ‘ultra low’ interest rate regime which has been with us since March 2009 shows no immediate signs of being tightened. Sterling dropped by as much as two cents or nearly 1.5% immediately after the release.”

 

 

12 thoughts on “BoE hold interest rates at 0.5% : Expert views on colourful Carney”

  1. Noo 2 Economics says:

    Is this the future for all western economies? Stagnation made tolerable for the relevant Government and populace by super monetary accommodation provided by Central Banks?

    1. Anonymous says:

      Hi Noo2

      This poses all sorts of questions. For example how far are the central banks prepared to go? This week saw the Bank of Japan buy some 3 month treasury bills in Japan at a negative yield. So it will owe the Japanese government money which of course is the same organisation which backs it! Will they end up buying the whole market? So far this week we have had a conventional response in that the main QE player has seen the Yen weaken to 107 versus the US Dollar.

      Now what if we get another slow down?

    2. Paul C says:

      Noo2
      Yes you hit the nail on the head. Stagnation is of course not really tolerable, only from day to day and that is the gruel that the authorities dole out. In the end folk will tire, as their aged are not cared for and their young cannot discover a future. It could take another generation yet.

      Paul

  2. therrawbuzzin says:

    Many, many, many Greeks, including some I know personally, have headed for Italy as the place to emigrate to.
    The options are narrowing.

    1. Anonymous says:

      Hi therrawbuzzin

      I can understand wanting somewhere that has a similar climate etc but there is also an element here of jumping from the frying pan into the fire sadly. What do you think made them choose Italy?

      You are right about the options narrowing.

      1. therrawbuzzin says:

        Hi Shaun. Another excellent, informative article.
        Italy is/was ideal for Greek emigration because many Greeks work in tourism-related industries, and Italy has, itself a substantial tourism industry.
        Add in the Mediterranean climate, the geographical proximity, transport links, EU membership, an economy not quite so decimated, and historical, cultural, and even lingual links, (Griko) and it’s not surprising that many want to try their hand in Italy.

      2. Jim M. says:

        hi Shaun,

        Portugal has the right climate but … well, you know how things are, Shaun.

        http://uk.reuters.com/article/2014/09/13/uk-portugal-bes-resignation-idUKKBN0H80DN20140913

        Is there nowhere safe left in Europe?? That nice Mr Draghi seems to think that more effort from the business community might get us over the hump. Is it terribly wrong of me to think he’s a bit of an ass?

        “In a speech to the EU finance ministers in
        Milan on Thursday, ECB President Mario Draghi described business investment as “one of the great casualties” of the financial crisis, saying it has fallen 20 percent since 2008.

        “We will not see a sustainable recovery unless this changes,” he said.”

        http://uk.reuters.com/article/2014/09/13/uk-eu-economy-idUKKBN0H80AQ20140913

        1. Anonymous says:

          European business & business creators are being excessively taxed. “Low tax” Britain with a 50% income tax and 20% vat, France with 75% punitive tax and high VAT. After paying tax, there just isn’t any money for investment.

          And Monti & his ilk are the problem – overpaid eurocrats, failed, bankrupt banks with overpaid bankers whose 6&7 figure salaries & bonuses come from taxpayer subsidy.

  3. tomthumb015 says:

    Renzi is like a man trying to push a giant rock up a mountain side. Italians are like the French, they hate change, they love red tape, and they wonder why Italy’s economy is being flushed down the tiolet? Renzi is trying to drag Italians into the 21st century and reform the much out dated article 18 employment clause.

    Years ago I was onboard a ship and we docked at Genoa in Italy. We had to get a couple of small box’s transported onto the ship. It took over 14 hours to deal with the bureaucracy and rubber stamps. I bet it still takes 14 hours today?

  4. Anonymous says:

    Hi Dutch

    The 1990 comparison is rather stark and I only stopped there as that is as far back as that data series goes. The part-time figures are not easy to find but I have tracked some down. As of June then part-time employment was 18.8% of total employment. The credit crunch caused a rise in the percentages from the 14%’s to the 18%’s but since then it has been relatively stable.

  5. Anonymous says:

    Hi Zummerzetman

    Italy has always had significance in the Euro area crisis for the simple reason that it was too big for even the “shock and awe” vehicles to bailout. That problem has got worse as the national debt has continued to rise and the economic stagnation has continued. The European Stability Mechanism has around 450 billion Euros of capital left which would not go far in Italy. Added to that Italy provides 17.9% of the backing of the ESM, how would that work in an Italian crisis?

  6. dutch says:

    Thanks for that Shaun.

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