Monetary Policy Committee

For the first time in quite a while, the Monetary Policy Committee of the Bank of England has today made a knife-edge decision which genuinely might have gone either way. The outcome, which was to leave the total of quantitative easing unchanged at £325bn, tells us something about the inflation fighting credentials of the MPC, which have been widely questioned in the financial markets. And it also tells us something about the way in which other central banks, including the Fed, might react to similar, if less strained, economic circumstances in coming months. Read more

The UK GDP figures for 2012 Q1 are due to be published on Wednesday, and are likely to be followed by the usual out-pouring of angst about whether the economy is in a “technical” recession. This will clearly have important political connotations, but does not mean very much in a deeper economic context. The initial estimates for quarterly GDP are notoriously unreliable, and are no longer taken as the best estimate of UK economic activity even by the Bank of England.

No-one should read too much into the Q1 data, since the GDP outcome for the quarter is likely to be either slightly positive or slightly negative, depending on what happens in the construction sector. This volatile sector seems to have recorded a large drop in output in Q1, and since it represents 7.5 per cent of the economy, it is capable of being the swing factor which decides whether the Office for National Statistics prints a positive or negative GDP number for Q1. In the latter case, the media would probably scream “recession”, on the grounds that the economy would have experienced two back-to-back quarters of negative GDP growth.

In fact, most economists think that the figure will scrape into positive territory, but in any event no Chancellor deserves to be hanged on such flimsy grounds. Read more