Monthly Archives: February 2012

Claire Jones

Mervyn King

Mervyn King. Image by Bloomberg.

Hello and welcome to the live blog on the Bank of England’s Inflation Report press conference.

This post should update automatically every few minutes, although it may take longer on mobile devices.



12.12 The live blog is now closed.

Key takeaways:

  • The MPC’s fan charts now show inflation more-or-less on target over the forecast period, and the risks to inflation are now judged to be broadly balanced. This would suggest that there will be no more QE in May. However, the MPC has also left itself some wriggle room, as inflation is still shown to be a little below target over the next couple of years. The governor also said inflation was “more likely to be below the target than above it for a good part of the three-year forecast period”.
  • The UK economy is still set to recover gradually, though the numbers may “zig zag” over the course of this year as a result of the Queen’s diamond jubilee.
  • Charlie Bean appeared confident that productivity levels would recover (see 11.25). And the governor was also surprisingly forthcoming in acknowledging that there may be flaws in the inflation targeting framework (see 11.36 and 10.53).

11.39 The press conference ends. In response to the final question, the governor says the 25 per cent fall in the real exchange rate is here to stay. Otherwise wage costs would have risen as a result of sterling’s depreciation. Read more

Ralph Atkins

Jens Weidmann, Bundesbank president, would have “no problem” with the European Central Bank selling its Greek bonds as part of a package to help the country’s bail-out. But he has thrown doubt on whether governments will pick-up the bill.

“I would have no problem removing the balance sheet risks that we were hesitant about accepting in the first place – so long as their removal does not lead to losses,” he told Handlesblatt, the German business newspaper, in an interview published on Wednesday.

His comments provide confirmation that the ECB would be prepared to forgo the profits it had expected to make on its Greek bond holdings – but, crucially, that no deal has yet been struck. Read more

Claire Jones

Central banks are nothing if not dedicated followers of fashion. Less than a month after the Federal Reserve opted for an explicit inflation target, the Bank of Japan has followed suit.

However, the BoJ’s adoption of an inflation target probably owes more to political pressure than the whims of its central bankers; unlike Ben Bernanke, BoJ governor Masaaki Shirakawa has never been a proponent of the framework.

And this perhaps explains why the BoJ has been more original than most on how it plans to target inflation.  Read more

Claire Jones

Investors’ attention will be fixed on Threadneedle Street tomorrow morning, when the Bank of England releases its latest forecasts for inflation and signals whether markets should expect more quantitative easing in May.

Sir Mervyn King’s latest missive to the chancellor, out today, seeks to explain why inflation remains significantly above target. Will it offer any clues about future QE?

Though it’s not worth reading too much into the letter the governor’s words do offer some support to the view that the asset purchases announced earlier this month will be the last. Read more

Ralph Atkins

Just how big a difference did European Central Bank action make after the collapse of Lehman Brothers in 2008?

ECB researchers have come up with some new, flattering numbers on the economic impact of the ECB’s decision to offer unlimited liquidity to eurozone banks. That step – taken under Jean-Claude Trichet, then ECB president – foreshadowed the decision in December by Mario Draghi, his successor, to extend the maximum loan term from one to three years.

The authors’ key conclusion, in a discussion paper from the London-based Centre for Economic Policy Research,  is that eurozone industrial production two years after Lehman Brothers was 2 per cent higher than would otherwise have been the case and unemployment about 0.6 per cent lower.  Read more

Claire Jones

By Claire Jones and Norma Cohen

The final batch of data for Project Merlin, the government’s flagship agreement with Britain’s biggest banks to encourage business lending and appease public anger over the financial crisis, show the banks missed their target for lending to small and medium-sized companies.

The data, out today, revealed lending to SMEs for 2011 fell just over a billion short of the £76bn target set by Project Merlin, which the government will not renew this year.

That the government’s target was not met is disappointing. But a shortfall of less than 2 per cent is hardly disastrous.

However, Bank of England data suggest lending conditions for SMEs are far worse than the Merlin data show. Both in terms of the supply of credit and the cost of borrowing.  Read more

Claire Jones

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Inflation Report

The Bank of England’s Inflation Report is out on Wednesday, and with it the Monetary Policy Committee’s eagerly awaited forecast for inflation. Read more

Claire Jones

Josef Ackermann better watch out the next time he visits the Eurotower.

It appears Mario Draghi, ECB president, hasn’t taken too kindly to comments made by Deutsche Bank chief executive last week.

Mr Ackermann told analysts last Thursday that Deutsche Bank had not taken part in the ECB’s first offering of three-year loans in December and was reluctant to be seen as needing help. This from the FT’s James Wilson in Frankfurt:

“The fact that we have never taken any money from the government has made us, from a reputational point of view, so attractive to so many clients in the world that we would be very reluctant to give that up,” [Mr Ackermann] told analysts.

The ECB has been keen to dispel any suggestion that a stigma is attached to participation in the auctions for three-year loans, the next of which to be held at the end of this month. And when quizzed on the topic at today’s presser, the usually unfazed Mr Draghi lashed out with the sort of rant that we had come to know and love from his predecessorRead more

Claire Jones

The European Central Bank’s governing council has left its benchmark rate unchanged at 1 per cent, as expected.

The deposit and lending rates remain at 0.25 per cent and 1.75 per cent respectively. Read more

Claire Jones

The Bank of England’s Monetary Policy Committee has announced £50bn more in quantitative easing, taking the total size of the asset purchase programme to £325bn.

The amount is in line with the consensus view, though some analysts were unsure whether the MPC would back further asset purchases after some positive news on the economy in recent weeks. Read more

Claire Jones

The pound, along with Britain’s fiscal retrenchment, are often cited as explanations for why yields on UK government debt now hover around record lows.

Some suggest another factor is at play: financial repression.

This sinister-sounding phrase describes the situation where government policy attempts to artificially lower interest rates with the specific aim of reducing their debt burden. Given that QE has done much to lower yields on UK government debt, some have tagged the policy with the financial repression label.

Regardless of whether or not this is the case (more on which later), Fathom, a consulting group made up of former Bank economists, today expressed doubts about whether such a policy – and for that matter gilt purchases – will do much to aid the UK recovery. Read more

The Bank of England meets on Thursday with expectations running high that the MPC will announce a further large dose of quantitative easing. Even if they pass this month, which seems possible, this is likely to be only a temporary postponement. Whenever it comes, the next move will be another bout of “plain vanilla” QE, involving the purchase of £50-75bn of government bonds, and taking the overall Bank of England holdings to over one third of the total stock of gilts in issue.

Meanwhile, the Fed is still debating whether to increase its holdings of long dated securities, and if so whether to focus once again on government debt, or to re-open its purchases of mortgages. Any further QE would be contentious on the FOMC, but there is probably still a majority in favour. Read more

Ralph Atkins

The European Central Bank’s governing council has a lot to discuss at Thursday’s meeting. Interest rates may not attract the most attention: the ECB’s main rate is widely expected to remain at 1 per cent.

Since January’s council meeting, the “tentative signs of stabilisation in activity at low levels” spotted by Mario Draghi, president, have been confirmed in economic indicators, especially eurozone purchasing managers’ indices. The latest bank lending data and survey of credit standards were very weak – but perhaps no weaker than expected. Crucially, it was too early for the impact of the €489bn of three year loans injected into the eurozone financial system by the ECB in December to have been felt.

Moreover, there seems little reason for the ECB to adjust interest rates ahead of a second three year longer-term refinancing operation (Ltro) on February 29. Instead, attention at Mr Draghi’s press conference is likely to focus on two issues: Greece, and the latest relaxation of ECB collateral rules.  Read more

Claire Jones

The Bank of England looks set to announce more money printing on Thursday, with £50bn the amount most analysts expect.

If the Monetary Policy Committee does go ahead and announce more QE, there is little doubt that it will buy nothing but gilts. However, it is less certain what sort of gilts the Bank would buy.

Over the past four months the Bank has bought around £5.1bn a week in gilts. The purchases have been spread out across the curve, with the Bank buying £1.7bn of gilts with maturities of between three and 10 years, £1.7bn with maturities of between 10 and 25 years, and the same amount with maturities of more than 25 years.

However, Sam Hill, UK fixed income strategist at RBC Capital Markets, believes that could change with the next round of asset purchases. Read more

Claire Jones

So the Bank of England’s decision is out at noon on Thursday. More money printing is pretty much of a dead cert isn’t it?

More or less. Since the Bank’s November inflation report showed policymakers expect inflation to undershoot its 2 per cent target over the next few years, most analysts have viewed it as a case of when, not if, the monetary policy committee announces more quantitative easing. Read more

Claire Jones

Our week ahead email helps you track the most important events in central banking. To see all of our emails and alerts visit

Bank of England, ECB decisions

The Bank of England’s Monetary Policy Committee and the European Central Bank’s governing council will set policy for the coming month on Thursday.

The Bank is expected to announce further quantitative easing after finishing the £75bn-worth of purchases announced in October.

Analysts are wavering, however, on whether the Bank will opt for £50bn or £75bn in additional asset purchases. Read more