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Vocabulary > Economy > UK > Bank of England
A difficult drive through the mist
The Guardian p. 21
1.8.2005
http://www.guardian.co.uk/business/story/0,3604,1539949,00.html
The Guardian
p. 33 6.9.2007
Bank of England
http://www.bankofengland.co.uk/
http://www.guardian.co.uk/business/2008/nov/13/inflation-deflation-interest-rates-recession
http://www.guardian.co.uk/business/2008/nov/06/interestrates-interestrates2
http://business.timesonline.co.uk/tol/business/economics/article5096373.ece
http://www.independent.co.uk/news/business/news/darling-hails-banks-rescue-package-812853.html
http://www.ft.com/cms/s/0/316cfef4-0f80-11dd-8871-0000779fd2ac.html
http://www.guardian.co.uk/business/2008/apr/10/interestrates.interestrates
http://www.guardian.co.uk/business/2008/jan/10/interestrates.interestrates2
http://www.guardian.co.uk/business/2007/nov/15/economy1
http://business.guardian.co.uk/interestrates/story/0,,2183415,00.html
http://commentisfree.guardian.co.uk/ashley_seager/2007/10/the_cut_around_the_corner.html
http://www.ft.com/cms/s/0/43a7b3ac-66a2-11dc-a218-0000779fd2ac.html
http://www.ft.com/cms/s/0/43a7b3ac-66a2-11dc-a218-0000779fd2ac.html
http://www.ft.com/cms/s/0/ba2f6e16-66d4-11dc-a218-0000779fd2ac.html
http://business.guardian.co.uk/story/0,,2172976,00.html
http://www.ft.com/cms/s/0/43a7b3ac-66a2-11dc-a218-0000779fd2ac.html
http://business.guardian.co.uk/markets/story/0,,2169821,00.html
http://business.guardian.co.uk/story/0,,1836465,00.html
http://business.guardian.co.uk/story/0,,2163142,00.html
http://www.bankofengland.co.uk/Links/setframe.html
http://money.guardian.co.uk/houseprices/story/0,,1772210,00.html
the Bank's governor
http://www.guardian.co.uk/business/2008/nov/13/inflation-deflation-interest-rates-recession
The Bank of England > History
http://www.bankofengland.co.uk/about/history/index.htm
the Old Lady
http://business.guardian.co.uk/markets/story/0,,2169833,00.html
The Bank of England’s monetary policy committee
http://www.guardian.co.uk/business/2008/nov/13/inflation-deflation-interest-rates-recession
http://www.bankofengland.co.uk/publications/news/2008/076.htm
http://business.timesonline.co.uk/tol/business/economics/article5096373.ece
The Bank of England > Monetary Policy Committee
Decisions
http://www.bankofengland.co.uk/monetarypolicy/decisions.htm
Bank of England > Monetary policy
One of the Bank of England's two core
purposes is monetary stability.
Monetary stability means stable prices - low inflation - and confidence in the
currency.
Stable prices are defined by the Government's inflation target,
which the Bank seeks to meet through the decisions on interest rates
taken by
the Monetary Policy Committee.
A principal objective of any central bank
is
to safeguard the value of the currency in terms of what it will purchase.
Rising prices – inflation – reduces the value of money.
Monetary policy is directed to achieving this objective
and providing a framework for non-inflationary economic growth.
As in most other developed countries, monetary policy operates in the UK
mainly through influencing the price of money – the interest rate.
In May 1997 the Government gave the Bank independence to set monetary policy
by deciding the level of interest rates to meet the Government's inflation
target – currently 2%.
Low inflation is not an end in itself.
It is however an important factor in helping
to encourage long-term stability in
the economy.
Price stability is a precondition for achieving
a wider economic goal of
sustainable growth and employment.
High inflation can be damaging to the functioning of the economy.
Low inflation can help to foster sustainable long-term economic growth.
(online 17.12.2008)
http://www.bankofengland.co.uk/monetarypolicy/more.htm
Bank of England > interest rates
December 2008
http://www.ft.com/cms/s/0/07ee3a02-c1eb-11dd-a350-000077b07658.html
http://business.timesonline.co.uk/tol/business/economics/article5284570.ece
Bank of England interest rates
1991-2008
http://www.guardian.co.uk/business/interactive/2008/oct/07/interestrates.creditcrunch
Bank of England > Official Bank Rate history >
Changes in the rate from 1694 2008
http://www.bankofengland.co.uk/statistics/rates/baserate.pdf
cut
http://business.timesonline.co.uk/tol/business/economics/article5096373.ece
Bank of England > Inflation report
http://www.bankofengland.co.uk/publications/inflationreport/index.htm
Consumer Price Inflation since 1750
2008
http://www.statistics.gov.uk/articles/economic_trends/ET604CPI1750.pdf
Threadneedle Street
http://business.guardian.co.uk/story/0,,2029027,00.html
the governor of the Bank of England
http://www.guardian.co.uk/business/2007/nov/15/economy1
Governors of the Bank of England > A
chronological list (1694 - Present)
http://www.bankofengland.co.uk/about/pdfs/governors.pdf
http://www.bankofengland.co.uk/about/history/index.htm
Bank of England's monetary policy committee
MPC
http://www.guardian.co.uk/business/2011/feb/23/interest-rate-rise-likely-mpc-minutes
http://business.guardian.co.uk/comment/story/0,,2050866,00.html
http://money.guardian.co.uk/interestrates/story/0,,1954799,00.html
http://money.guardian.co.uk/houseprices/story/0,,1835387,00.html
Bank
of England base rates
Bank of England rate-setter
http://money.guardian.co.uk/interestrates/story/0,6453,1423222,00.html
The Guardian
p. 32 6.9.2007
A Crisis of Faith in Britain’s Central Banker
February 6, 2011
The New York Times
By LANDON THOMAS Jr. and JULIA WERDIGIER
LONDON — A central banker need not be loved, but at the least he should
command respect — and in Britain these days Mervyn King cannot count on either.
Mr. King, the donnish governor of the Bank of England, has been accused of
presiding over the worst stagflation — a dreaded combination of stagnant
economic activity and rising inflation — happening in any major developed
economy. He has been condemned for flouting the bank’s independence by publicly
supporting the British government’s deficit-cutting strategy.
As for the issue on which he may have most closely staked his reputation — that
Britain’s large banks must increase capital levels well beyond international
standards — he so far has been ignored.
Doubts over Mr. King’s inflation strategy come as European leaders are working
to devise a unified strategy for dealing with sovereign debt woes in the region.
Germany and France are pressing for concrete steps to harmonize fiscal spending
by focusing on tax and pension issues, while weaker nations are struggling to
bring down their deficits.
But with inflationary pressure picking up everywhere, the main topic of debate
is expected to be how much longer the European Central Bank, like its
counterpart in Britain, can resist the pressure to raise interest rates.
Not long ago, central bankers in the United States, the European Union and
fast-growing emerging countries like Turkey and Brazil were being hailed. They
were seen as having salvaged their economies by flooding their banking systems
with enough money to help prevent a depression.
But now many of them are confronting the prospect that their powers are on the
wane, as inflation begins to creep up and as growth in advanced industrial
countries is hampered by high levels of government debt.
For a group accustomed to being influential — the Federal Reserve’s Ben S.
Bernanke and Jean-Claude Trichet of the European Central Bank are facing
challenges similar to Mr. King’s, if less acute — such diminution can come as a
rude awakening. In a speech last month, Mr. King acknowledged his limited
ability to combat the high levels of unemployment and increased inflation
bedeviling Britain.
With food and energy prices increasing and the weakness of the British pound
making imports more expensive, he said, monetary policy could not “alter the
fact that, one way or another, the squeeze in living standards is the inevitable
price to pay for the financial crisis and the subsequent rebalancing of the
world and U.K. economies.”
It sounded a bit like the last cry of the “incredible shrinking central banker.”
“It was a defensive speech, and there is a degree of frustration in the forces
that are beyond his control,” said DeAnne S. Julius, the chairman of Chatham
House, a research and analysis organization in London, and a former member of
the Bank of England’s monetary policy committee.
Ms. Julius is a critic and argues not only that Mr. King is underestimating the
inflationary winds but also that he is too extreme in urging that British banks
take on more capital. “The pressure is on — both in terms of banking reform and
inflation,” she said. “I do not think he has an easy life.”
And then there is the issue of fiscal policy.
The British public could be in for an even rougher ride this year when the
government’s £80 billion austerity program really starts to bite. That prospect
looms even larger after recent indications that the economy, instead of
continuing to grow, shrank by 0.5 percent in the last quarter.
Consumer prices rose at a 3.7 percent annual rate in December, reaching the
highest level in two years and, for a 13th consecutive month, missing the Bank
of England’s target of 2 percent.
Mr. King declined to be interviewed. But people who have worked with him paint a
picture of an innovative thinker who has an agreeable charm but can also be
pugnacious and confrontational when challenged intellectually.
“Mervyn is not blessed with any doubts about his abilities,” said Michael Foot,
chairman of the Promontory Financial Group consulting company in London and a
former Bank of England executive.
But the accumulation of pressures seems to be having its effect. His January
speech, while carrying all the quirky earmarks of a King address — he began and
ended with quotes from “Anna Karenina” — came across to many analysts as
unusually prickly rather than as a measured analysis of the British economy.
“There is a misapprehension in some quarters that the monetary policy committee
could have prevented the squeeze in living standards by raising interest rates
over the past year to bring inflation below its present level,” Mr. King said in
the speech. “That view is a misunderstanding of how monetary policy works.”
Two members of the bank’s policy making committee recently expressed public
disagreement with Mr. King’s insistence that Britain’s current inflation rate
had been driven by outside shock factors and that interest rates should not be
increased. He has also been accused by another board member, Adam Posen, of
jeopardizing the bank’s independence by talking up the Conservative-led
government’s deficit-cutting strategy.
Since the Bank of England was made independent from the Treasury in 1997, its
governors have been appointed by the government but have been viewed as
apolitical, with a focus on ensuring price stability — and with no business
sharing their views on fiscal policy. Mr. King, whose second and final term will
end in 2013, appeared to have moved beyond that understanding when he endorsed
the coalition government’s plan to cut the deficit faster than the opposition
Labour Party had suggested when it was still in power.
The fear, some economists said, is that his endorsement creates expectations
that he would be willing to neglect inflation for a while in order to let the
government’s spending cuts work.
To Mr. King’s defenders, however, those who raise such fears do not know the
heavy burden of running the Bank of England from its palace-like base on
Threadneedle Street at the heart of the City, as London’s financial district is
known. Indeed, Mr. King has plenty of fans who praise him for the power of his
convictions — unpopular as they may be.
On the subject of being too close to the Tories on cutting the deficit, his
defenders point to leaked cables in which Mr. King raised doubts about the
experience of the Conservative leader, David Cameron, and his chief economic
adviser, George Osborne.
“He is a king, a monarch in the classic sense, and he is fulfilling his duty to
advise, consider and warn,” said Michael Fallon, a Conservative member of
Parliament who has questioned Mr. King numerous times as a member of the
Treasury select committee. “Our public finances were in a deeper mess than
others, and he has helped shape that debate.”
Mr. King has also attracted a strong following — largely outside British banking
circles — for his aggressive campaign to reduce the leverage of Britain’s banks.
He laid out his case in a hard-hitting address late last year in New York.
As Mr. King pointed out in that speech, Britain’s banks pose unusual risks
because they have assets 4.5 times the size of the British economy. How to scale
that back is the subject of a much anticipated independent inquiry here, led by
John Vickers, a former Bank of England chief economist and head of the Office of
Fair Trading.
Mr. King has been careful to not prejudge the result. He has made clear, though,
that his view is that radical changes must come, saying in his speech that of
the systems one might use to organize banks, “the worst is the one we have
today.”
A Crisis of Faith in
Britain’s Central Banker, NYT, 6.2.2011,
http://www.nytimes.com/2011/02/07/business/07king.html
Sterling extends losses as BofE cuts growth forecast
Published: February 11 2009
11:14
Last updated: February 11 2009
11:14
Thez Fiancial Times
By Peter Garnham
The pound extended its losses on Wednesday as the Bank of
England signalled it was prepared to take unconventional steps to boost the UK
economy.
Mervyn King, the Bank’s governor, said the UK economy was in deep recession and
that the risks to economic growth lay “heavily to the downside” as the
government wrestled with problems in the UK financial system.
In its quarterly Inflation Report, the Bank cut its growth
forecasts sharply and predicted UK inflation would fall well below its 2 per
cent target if interest rates remained at their current level.
This heightened expectations that the Bank would deliver a further cut in UK
interest rates after lowering them by 50 basis points to 1 per cent after its
monetary policy committee meeting last month.
But it was comments that the Bank would embark on a policy of quantitative
monetary easing once interest rates fell to zero that undermined sterling.
Mr King said the central bank would ‘certainly’ be buying Gilts and the supply
of money needed to be increased.
“In other words, Mr King is talking about turning on the printing press, which
would effectively de-base the value of the pound,” said Paul Mackel at HSBC.
“On the back of Mr King’s comments the path of least resistance is for sterling
to weaken.”
The pound fell 1 per cent to $1.4385 against the dollar, lost 1.2 per cent to
£0.8987 against the euro and fell 1.6 per cent to Y129.36 against the yen.
Meanwhile, the dollar and the yen remained supported on Wednesday after sharp
gains in the previous session.
Both currencies rallied strongly on Tuesday as disappointment following the US
government’s bank rescue plan boosted safe haven demand for the dollar and yen.
The turnaround in sentiment stemmed the recent rebound in higher-risk
currencies, with the pound one of the main underperformers reflecting the
exposure of the UK economy to the financial sector.
Analysts said the market expected to see clear and decisive guidance from the
new US administration, but were disappointed by the lack of detail concerning
the pricing of distressed assets, the epicentre of the financial system’s
problems.
“The market, correctly, doesn’t much care about tax rebates and public spending,
as it understands these well and generally deems it a sideshow compared to the
enormity and confusion surrounding bank balance sheets and lending confidence,”
said Maurice Pomery at IDEAGlobal.
“The statement failed to deliver.”
The yen rose 0.7 per cent to Y89.87 against the dollar, climbed 0.5 per cent to
Y116.37 against the euro and gained 0.9 per cent to Y58.71 against the
Australian dollar.
The dollar eased 0.2 per cent to $1.2945 against the euro and edged 0.2 per cent
lower to SFr1.1534 against the Swiss franc.
Meanwhile, the Swedish krona dropped sharply after the Riksbank, the country’s
central bank, cut interest rates by more than expected after its policy meeting.
The bank slashed rates by 100 basis points to a record low of 1 per cent and
said it might have to cut rates further. Analysts had been predicting a 50
basis-point move.
The Swedish krona fell 1.5 per cent to SKr8.3640 against the dollar and dropped
1.8 per cent to SKr10.8350 against the euro.
Audrey Childe-Freeman at Brown Brothers Harriman said the fact that Sweden’s
yield advantage was falling by the month and had almost disappeared would weigh
on the krona in the short term.
However, she said over a longer-term perspective, the pro-active fiscal and
monetary policy mix endorsed by the Swedish authorities may be rewarded.
“Clearly that is not today’s story, but it is worth bearing in mind,” said Ms
Childe-Freeman.
Sterling extends
losses as BofE cuts growth forecast, FT, 11.2.2009,
http://www.ft.com/cms/s/0/9aacf07e-f82b-11dd-aae8-000077b07658.html
Bank of England cuts rates to 2%
Published: December 4 2008 12:00
Last updated: December 4 2008 16:20
The Financial Times
By Norma Cohen
Signs that the economic downturn is gathering pace prompted the Bank of
England’s monetary policy committee to cut interest rates on Thursday by a full
percentage point to 2 per cent, the lowest level for nearly four decades.
The last time interest rates were at 2 per cent was in the final days of George
VI’s reign in 1951 and the previous time lending costs were cut from 3 to 2 per
cent was October 26 1939, after Britain entered the second world war.
Explaining its move, the Bank said in a statement that it believed demand was
now so weak that “there remained a substantial risk of undershooting the 2 per
cent CPI inflation target in the medium term.”
The rate cut, while much larger than the Bank is accustomed to, is smaller than
the 1.5 percentage point reduction made at the MPC’s last meeting in November
and smaller than the money markets had begun to expect.
The Bank’s move was followed by the European Central Bank which cut its key
policy rate by ¾ per cent to 2.5 per cent as central banks around the world
attempt to tackle slowing rates of growth. The Riksbank in Sweden cut its
interest rates by an unprecendented 175 basis points to 2 per cent and the
Reserve Bank of New Zealand cut its main lending rate by 150 basis points to 5
per cent.
The cut by the Bank suggests either that the MPC is less convinced than many
private sector economists that deflation is a real possibility, or that it has
other concerns about the impact of much lower rates, including worries over the
slide in the pound. Sterling on Thursday fell to the lowest level against the
dollar for six and a half years and to a record low against the euro.
In its announcement, the Bank pointed to “a number of fiscal measures in train”,
both in the UK and abroad, aimed at boosting demand to counteract the current
downturn. The minutes of the last MPC meeting showed that some members expressed
a desire to see how the fiscal stimulus outlined in the government’s pre-Budget
Report might affect demand before making any exceptional moves in interest
rates.
The move comes after key purchasing managers’ index readings for the
construction, manufacturing and services sectors hit record lows in recent days,
with the future orders component of each index predicting that worse is to come.
In making its interest rate decision, the Bank expressed concerns about the flow
of credit to businesses and households. “Despite the actions taken to raise bank
capital, ease funding and improve liquidity, conditions in money and credit
markets remain extremely difficult,” it said.
Ominously, the Bank concluded that it was “unlikely that a normal volume of
lending would be restored without further measures.”
Interbank lending markets have seized up again, after a brief breathing spell
following the government’s move to provide a £37bn taxpayer-funded lifeline to
the nation’s banks. That suggests that the woes of the financial sector are
still too great to allow it to resume its normal pattern of lending to
households and businesses.
The Bank noted that while CPI inflation remains high at 4.5 per cent, the weaker
outlook for activity in the near term and further falls in commodity prices have
lowered that profile. The recent decision to cut value-added tax temporarily
should also bear down on inflation in the near term, although that effect will
be reversed in 2010.
Andrew Smith, chief economist at KPMG, said: ”The battle against deflation is
on. Rates are set to fall further, possibly to zero, and soon, as policymakers
try to counteract the powerful contractionary forces at work in the economy.
“However, it is unlikely that low interest rates alone will achieve the desired
result and the UK may well have to follow the US with unorthodox measures, such
as buying up mortgage and commercial debt, to free-up lending and re-liquefy the
financial system.”
Ian McCafferty, chief economic adviser to the CBI, the employers’ body, welcomed
the cut.
“The economy needs a significant monetary stimulus and the Bank has clearly
decided this will be best achieved by another big cut in interest rates. What is
critical for business and consumers alike is that this reduction is passed on,”
he said.
Stephen Robertson, director general of the British Retail Consortium, said:
“This is exactly the type of decisive action we need during these uncertain
times. With the threat of inflation fading, the Bank is right to concentrate on
jump-starting the economy.
He added: “The Bank’s job is not done. It must continue to cut rates in the new
year to get the economy heading in the right direction again.”
Simon Rubinsohn, chief economist at the Royal Institution of Chartered
Surveyors, was more guarded. While describing the cut as a “bold move”, he
added: “In our opinion it will not on its own be sufficient to bolster
confidence given the scale of the current financial crisis.
“Further significant job losses will be announced in the run-up to Christmas and
into the first half of 2009, putting pressure on the Bank to cut rates further.
We expect rates to fall to 1 per cent by the end of the first quarter of 2009.”
Bank of England cuts
rates to 2%, FT, 4.12.2008,
http://www.ft.com/cms/s/0/07ee3a02-c1eb-11dd-a350-000077b07658.html
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