Daily Archives: August 11, 2011

Claire Jones

Last month, a Committee on the Global Financial System paper identified “a vicious circle between the conditions of the public finances and those of banks”.

This sounds a lot like what is going on in France.

From Tuesday’s FT.com:  

Claire Jones

The Bank of England’s reluctance to include the risks from the eurozone crisis in the inflation report fan charts suggests one or more members of the MPC may have changed their minds on how to vote in recent days, according to RBS’s Richard Barwell.

At the Bank’s press briefing on Wednesday, the governor said while the greatest risks to global demand came from the eurozone, a worsening of the debt crisis could not be captured in its fan charts for growth and inflation:

The greatest risks to the prospects for global demand come from the euro area……To the extent that those risks are already reflected in asset prices, bank funding costs and survey measures of confidence, they will be captured in the MPC’s projections.  But beyond that, we see no meaningful way to quantify such risks and they are therefore excluded from the fan charts.

So the fan charts did not reflect the possibility of a worsening of the eurozone crisis other than what is “already reflected” in prices and attitudes.

But, as Mr Barwell notes, this appears at odds with a box on page 38 of the report which says that, as monetary policy is forward looking, “the MPC needs to consider all the possible risks affecting the UK economy including all of those from the euro area, when forming its policy judgement.”

If MPC members must consider all possible risks, then – given the fan charts’ role is to communicate the committee’s forecasts for growth and inflation – it surely makes sense to include some indication of what members believe a worsening of the eurozone crisis would do to the UK economy.