monetary policy committee

Chris Giles

There are many uses of the phrase “new normal” in economics these days. Usually, it is used to signify lower growth or a different type of growth than in the pre-crisis period. Mark Carney went onto the radio this morning to talk about the “new normal” in monetary policy.

Interest rates would be materially lower in future than the 5 per cent rate widely seen as normal before the crisis. The Bank of England governor’s words have been widely reported as a big new statement of policy.

Is this a new policy?

No. Carney first talked about future interest rates being “well below historical norms” in his January speech at the World Economic Forum in Davos, which confirmed the BoE had ditched its original forward guidance linking interest rates solely to unemployment. The important passage was reported clearly in the FT at the time and is copied below. Read more

Chris Giles

In a talk delivered on 3 January, which the ever-so-slightly disorganised Andy Haldane has just got round to writing up, the Bank of England’s head of financial stability beautifully sets out the new central bank orthodoxy on the benefits of macro-prudential policy.

First, he clearly defines the term:

“In a nutshell, it means that policymakers have begun using prudential means to meet macro-economic ends.”

Next, he looks back at the crisis and asks the correct question: what would have been different had macro-prudential policy been fashionable (it was invented) rather than deeply unfashionable in central banking circles. Read more

Claire Jones

Future BoE governor Mark Carney. Getty Images

Bank of England governor-designate Mark Carney talked a lot today about his fondness for so-called “forward guidance” — where a central bank indicates what is likely to happen to monetary policy way beyond its next policy vote.

The theory is that forward guidance boosts growth by providing more certainty to lenders that they will be able to access cheap cash from the central bank for a long time to come. Convinced of this, banks will reduce borrowing costs and lend more. And, with rates remaining lower for longer, savers will believe there is little point in holding cash and will go splurge. Read more

Claire Jones

Asked today whether the Treasury should scrap the Bank of England’s 2 per cent inflation target, former policy maker and current central banking guru Charles Goodhart said no. The target, he said, had done little to stop the Monetary Policy Committee easing rates and printing money to stave off an economic and financial meltdown.

Andrew Sentance, another ex rate-setter, agreed. “Inflation targeting hasn’t been the constriction it has been played up to be,” he said this morning.

A cynic would argue that this is because in recent years the BoE has ignored price pressures and instead focused on growth; inflation has been above 2 per cent since December 2009 — rising as high as 5.2 per cent in the autumn of 2011. Read more

The three independent reviews of the Bank of England’s performance before and during the financial crisis must have been sobering for the court, its governing body. In polite but pointed language the reviews, published on November 2, confirmed that the BoE was ill prepared to recognise or deal with the crisis in its early days. The BoE’s forecasting was also found to be subject to groupthink.

The reviews provided many detailed recommendations but also made it clear that a full-scale cultural change is needed to address the root causes of the problems. This will be a high priority for the next governor.

 Read more

Chris Giles

On the day of the inflation report, the Bank of England came out with its most pessimistic medium-term outlook for the economy, suggesting weak growth would not cause inflation to fall below the 2 per cent target. That suggests no room for more quantitative easing. But is that really the case?

How loose is monetary policy? How big is the QE programme? These were all questions that popped up again and again at Bank governor Sir Mervyn King’s press conference this morning in light of the Treasury’s temporary raid on the accumulated surplus of the QE pot. Here is a timeline of what we know and Sir Mervyn’s answers today. Read more

Claire Jones

Last Friday the FT’s economics editor Chris Giles took issue with the use of “the Niesr chart”, so-called because of its frequent publication by the National Institute of Economic and Social Research, to show what’s happening with the UK economy.

Chris argued that the Niesr chart, which shows that — in GDP terms — the current recession is the longest and the deepest since the 1930s, “may well be showing us irrelevant nonsense”.

Though output is now almost 4 per cent below where it was in 2008, the latest employment figures – out today – show that there are more jobs around today than before the crisis began. And this, Chris argued, meant that neither the Niesr chart nor the employment data should be used alone to illustrate what has happened to the UK economy in recent years.

External Monetary Policy Committee member Ben Broadbent has some sympathy with this view. In a speech today, Mr Broadbent argued that, because of the disparity between what the output figures and the jobs data tell us, policy makers “may be less confident than usual” about whether the origins of a change in the GDP result from a supply shock (which monetary policy can do little about) or weak demand (which monetary policy is supposed to address). Read more

Claire Jones

Adam Posen’s brief flirtation with the Monetary Policy Committee majority is well and truly over.

At the MPC’s April and May votes, Mr Posen left David Miles as the only member voting for more quantitative easing.

That is unlikely to be the case at next month’s vote, however. In a speech delivered this afternoon, Mr Posen not only calls for more money printing, but also for the Bank to spend the cash on assets other than gilts  – an idea that the governor and other Bank staffers have fiercely objected to on the grounds that it would hinder Threadneedle Street’s independence.

Elements of the argument are not new — Mr Posen in September called for the Bank to branch out from buying gilts and do more to spur lending to smaller businesses. Again, he is dismissive of the view that doing more impacts a central bank’s credibility.

But there are also significant differences in today’s speech from what Mr Posen had to say in the autumn. Read more

Claire Jones

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More QE from the Bank?

The Bank of England‘s Monetary Policy Committee meets on Wednesday and Thursday, when the decision is due out at noon UK time (11am GMT).

Will the MPC vote for more QE? Read more

Claire Jones

Commuters pass the Bank of England. Image by Getty

Commuters pass the Bank of England. Image by Getty

As expected, the Bank of England today kept interest rates on hold at 0.5% and opted not to print more money.

Analysts’ attention has long focussed on the Monetary Policy Committee’s May meeting; it was always more likely to hold off on plumping for more quantitative easing until then. However, its far from certain whether the MPC will opt for further asset purchases on 10 May.

Here are a few of the factors that are likely to sway the MPC’s decision on whether it adds its the £325bn-worth of asset purchases. Read more

Claire Jones

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MPC minutes

The minutes of this month’s Monetary Policy Committee meeting, out on Wednesday, will reveal whether all of the nine-strong committee backed the decision to expand quantitative easing by £50bn.

Many think the decision will have split the committee. Read more

Claire Jones

Sir Mervyn King has in the past been of the sort of central banker that has, at every opportunity, extolled the virtues of inflation targeting.

So comments at yesterday’s Inflation Report press conference, where the governor conceded that the Bank of England’s monetary policy framework has its deficiencies, were something of a surprise. Here’s what he said:

“I do think the experience of the last four to five years has raised some question marks about what inflation targeting can hope to achieve and whether it’s sufficient. I think our feeling now is, on its own, it’s not sufficient, it did not prevent the build up of a large degree of financial instability. And there is I think a debate to be had about whether other instruments are the right way to deal with that, through our Financial Policy Committee, or whether monetary policy should take other considerations into account.”

Could this be the beginning of the end for the Bank of England’s inflation target, at least in its current guise?

It’s far too early to say. Besides, with the governor due to depart mid-way through next year, whether or not the Bank alters its monetary policy framework will largely depend on the views of Sir Mervyn’s successor.

However, his calls for a debate could prove significant. Read more

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

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

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

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

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

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The Bank of England’s financial (in?)stability report is due out on Thursday. 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

FOMC minutes

The Federal Open Market Committee on Tuesday releases the minutes of its policy meeting held earlier this month. The minutes are out at 14.00 local time (19.00 GMT).

This from the FT’s US economics editor Robin Harding on what they’ll cover: Read more

Claire Jones

With UK inflation slowing to 5 per cent in October, most believe price pressures are now past their peak.

But few agree on how fast inflation will fall towards the Bank’s 2 per cent target.  Read more