050-681 The Bank Of England Quarterly Inflation Report released on Wednesday, February 16th, 2011 indicates the BOE is content on holding benchmark rates despite inflation above the target rate and despite hawks within the committee that would like to see the rates raised soon.
The UK growth projection for the next 2yrs is lower than it was from the last quarterly inflation report and is now expecting inflation to fall below 2% within those 2yrs according to MPC Governor King. The pound was sold off after the meeting due to the new bearish rate outlook.
050-683 BOE governor Mervyn King said that the drop in living standards is the price we all have to pay for the financial crisis and "the recovery" is unlikely to be smooth.
Meanwhile UK inflation rose to 4% in January double the 2% inflation target. King denied the MPC has lost control of inflation. Do to the lack of growth, raising the interest rates might be more harmful to the UK economy, forcing policy makers to live with higher inflation - which they are hopping is temporary.
050-682 The day after the meeting... In London at the Institute for Economic Affairs...
External MPC member Andrew Sentance began strongly objecting MPC governor Kings loose stance on rates after the BOE Inflation Report was released. Sentance said: "Since last summer, I have been arguing that a gradual tightening of UK monetary policy was needed sooner rather than later," "And I also argued that delaying policy action in the second half of last year would mean bigger and sharper interest rate rises might eventually be needed to control inflation. I am afraid thatwarning is being borne out by events."
Sentance had voted for rate hikes since June 2010 but his hawkish stance has been ignored by King. Currently the benchmark rate is 0.5%. Low benchmark rates tend to put upward pressure on commodities. With inflation near 4% it makes the real rate negative at ruffly -3.5% (0.5% - 4% = -3.5%). Negative real rates have a negative effect on a currency and lead to increased speculation as investors seek higher returns to offset purchasing power loss. King has made statements about the inflationary figures being annual figures and apparently don't count as much according to his view. I hope he is right as for the consequence it will have on the public.
The UK growth projection for the next 2yrs is lower than it was from the last quarterly inflation report and is now expecting inflation to fall below 2% within those 2yrs according to MPC Governor King. The pound was sold off after the meeting due to the new bearish rate outlook.
050-683 BOE governor Mervyn King said that the drop in living standards is the price we all have to pay for the financial crisis and "the recovery" is unlikely to be smooth.
Meanwhile UK inflation rose to 4% in January double the 2% inflation target. King denied the MPC has lost control of inflation. Do to the lack of growth, raising the interest rates might be more harmful to the UK economy, forcing policy makers to live with higher inflation - which they are hopping is temporary.
050-682 The day after the meeting... In London at the Institute for Economic Affairs...
External MPC member Andrew Sentance began strongly objecting MPC governor Kings loose stance on rates after the BOE Inflation Report was released. Sentance said: "Since last summer, I have been arguing that a gradual tightening of UK monetary policy was needed sooner rather than later," "And I also argued that delaying policy action in the second half of last year would mean bigger and sharper interest rate rises might eventually be needed to control inflation. I am afraid thatwarning is being borne out by events."
Sentance had voted for rate hikes since June 2010 but his hawkish stance has been ignored by King. Currently the benchmark rate is 0.5%. Low benchmark rates tend to put upward pressure on commodities. With inflation near 4% it makes the real rate negative at ruffly -3.5% (0.5% - 4% = -3.5%). Negative real rates have a negative effect on a currency and lead to increased speculation as investors seek higher returns to offset purchasing power loss. King has made statements about the inflationary figures being annual figures and apparently don't count as much according to his view. I hope he is right as for the consequence it will have on the public.
No comments:
Post a Comment