Changes at the Bank of England but inflation concerns remain
The release on Wednesday of the minutes from the Bank of England's Monetary Policy Committee meeting on June 5th showed a predictable 8 -1 vote in favour of keeping interest rates on hold at 5%.
David Blanchflower was again the only committee member to vote for a quarter-point cut, arguing that evidence of slowing growth “more than outweighed" concerns over short-term inflation.
Although both rate cuts and hikes were discussed, the minutes show that anxieties over slowing economic growth are now being matched if not over-taken at the top of the agenda by the threat of rising inflation.
Even before the release of CPI data on Tuesday, inflation had clearly been a growing concern amongst some members of the MPC, as shown by the statement that, “Most members concluded that developments this month had meant that the risks to inflation in the medium term had moved further to the upside."
Significantly some committee members were willing to consider an immediate rate increase in order to keep rising inflation in check, but decided against a hike because it wasn't required urgently. Indeed it is worth noting that at 5%; the UK still has the highest benchmark rate in the Group of Seven industrialized nations.
At the Mansion House dinner in the City last night, both Mervyn King and the Alistair Darling used their speeches to highlight the difference between external inflationary pressures such as oil prices, which the UK has little control over, in comparison to the greater risk posed by inflationary wage rises which the Chancellor stated, “Would undermine rather than raise people's living standards".
The message from both Darling and King was very much that consumers would have to take the medicine now in order to prevent current difficulties from causing long term damage to the UK's economic stability.
In a clear indication that the BOE is now seriously considering a rate hike, King used his speech to stress that, “There should be not doubt that the MPC is prepared to take whatever action is needed to return inflation to the 2% target and to keep expectations of inflation in the medium term anchored to the target." Last night's dinner also included an announcement by the Chancellor detailing a significant shake-up at the central bank.
The changes include the setting-up of a financial stability committee in a move which could be viewed as undermining King's position on the same night that one of the governor's close allies, Sir John Gieve, announced that he is due to step down from his role as deputy governor.
Markets appear to have turned pessimistic on the pound's future, with some analysts believing that the longer inflationary pressures prevent the BoE from cutting rates, the deeper the UK's economic downturn will be. Equally, any rate hike could be one blow too many for an ailing economy.
On the currency markets Sterling dipped initially but the continuing weakness of the dollar was evident as EURUSD moved up through 1.55 on Wednesday with the shift continuing during overnight trading. GBPUSD followed a similar pattern to push and stay above 1.96 this morning.
In the equity markets the FTSE dipped by 1.79% as the recovery in the financial sector proved to be short lived with concerns remaining over further write downs. Over on Wall Street the Dow Jones ended the day down 1.08% amid continuing apprehension over any oil dependent company, whilst mirroring London, the financial sector also took a hit.
The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.
David Blanchflower was again the only committee member to vote for a quarter-point cut, arguing that evidence of slowing growth “more than outweighed" concerns over short-term inflation.
Although both rate cuts and hikes were discussed, the minutes show that anxieties over slowing economic growth are now being matched if not over-taken at the top of the agenda by the threat of rising inflation.
Even before the release of CPI data on Tuesday, inflation had clearly been a growing concern amongst some members of the MPC, as shown by the statement that, “Most members concluded that developments this month had meant that the risks to inflation in the medium term had moved further to the upside."
Significantly some committee members were willing to consider an immediate rate increase in order to keep rising inflation in check, but decided against a hike because it wasn't required urgently. Indeed it is worth noting that at 5%; the UK still has the highest benchmark rate in the Group of Seven industrialized nations.
At the Mansion House dinner in the City last night, both Mervyn King and the Alistair Darling used their speeches to highlight the difference between external inflationary pressures such as oil prices, which the UK has little control over, in comparison to the greater risk posed by inflationary wage rises which the Chancellor stated, “Would undermine rather than raise people's living standards".
The message from both Darling and King was very much that consumers would have to take the medicine now in order to prevent current difficulties from causing long term damage to the UK's economic stability.
In a clear indication that the BOE is now seriously considering a rate hike, King used his speech to stress that, “There should be not doubt that the MPC is prepared to take whatever action is needed to return inflation to the 2% target and to keep expectations of inflation in the medium term anchored to the target." Last night's dinner also included an announcement by the Chancellor detailing a significant shake-up at the central bank.
The changes include the setting-up of a financial stability committee in a move which could be viewed as undermining King's position on the same night that one of the governor's close allies, Sir John Gieve, announced that he is due to step down from his role as deputy governor.
Markets appear to have turned pessimistic on the pound's future, with some analysts believing that the longer inflationary pressures prevent the BoE from cutting rates, the deeper the UK's economic downturn will be. Equally, any rate hike could be one blow too many for an ailing economy.
On the currency markets Sterling dipped initially but the continuing weakness of the dollar was evident as EURUSD moved up through 1.55 on Wednesday with the shift continuing during overnight trading. GBPUSD followed a similar pattern to push and stay above 1.96 this morning.
In the equity markets the FTSE dipped by 1.79% as the recovery in the financial sector proved to be short lived with concerns remaining over further write downs. Over on Wall Street the Dow Jones ended the day down 1.08% amid continuing apprehension over any oil dependent company, whilst mirroring London, the financial sector also took a hit.
The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.
Labels: Bank of England, debt consolidation, interest rates, mortgage calculator
posted by Wise Money @ 8:07 AM
0 Comments:
Post a Comment
Links to this post:
Create a Link
<< Home