Base rate held at 0.5%

Radiantsoul

Those are retail banks not the central bank. I don't see what raising interest rates to that level would be designed to achieve.

tomterm8

What's the justification for more QE? As far as I can see, with inflation well over target, there is none. It would be different if CPI were undertarget but it is not.

inspector_monkfish

tomterm8 wrote: »

What's the justification for more QE? As far as I can see, with inflation well over target, there is none. It would be different if CPI were undertarget but it is not.

beacuse the Banks still won't/can't lend

inspector_monkfish

13:14 07May09 (GBP) BoE Bank Rate held, QE policy expanded

(GBP) The UK BoE, following the end of its MPC meeting, has, as widely expected, kept the official Bank Rate steady at 0.5% for the second month running. Also the accompanying statement announces an intention to expand asset purchases beyond the GBP75bn initially planned, by GBP50bn, taking the total QE programme to GBP125bn. This should be supportive for Gilts, and it appears that the BoE will continue with the current pace of purchases of circa GBP25bn per month, thus completing the total GBP125bn programme in Aug.

The current median expectation is for the BoE to use up the GBP150bn it's been permitted by HMT to use in its asset purchase programme. This means that come Aug, if things continue to look ropey as far as the global and domestic economies are concerned, the CB could still announce it is necessary to utilise the remaining GBP25bn of ammunition that it has left to expand money supply via the issuance of central bank reserves. Indeed the reason the BoE has decided to use an additional GBP50bn in its QE weaponry is because a) the world economy remains in deep recession, b) output is still contracting whilst international trade has fallen sharply, and c) the international banking and financial system remains fragile, despite all the official intervention heretofore seen to stabilise it. Also the BoE cites the increasing degree of spare capacity in the UK economy and the sharp easing of pay pressures wrought by the loosening in the labour market as factors that threaten to bear down on targeted CPI inflation to well below the 2% target over the medium term, after diminishing contributions from food & energy prices would have pushed the rate down to below 2% in the s/t.

Although the BoE does acknowledge that domestic and overseas surveys show promising signs that the pace of economic decline has begun to moderate, and reminds us that considerable economic stimulus stemming from the easing in monetary and fiscal policy, at home and abroad, substantive GBP depreciation, past falls in commodity prices, and actions by authorities internationally to improve the availability of credit, are imparting a massive economic stimulus, it remains wary of two major phenomena. The first is the effect of the ongoing readjustment process in the economy, nested in rising private savings and ongoing bank balance sheet restructuring. The second is weak global demand, with both phenomena seen as continuing to drag UK growth significantly. The CB also warns that whilst it expects there to be a growth recovery generated by the aforementioned influences, it remains highly uncertain about the timing and strength of such an upturn. We think the BoE will probably eventually announce the utlisation of the remaining GBP25bn left in its QE arsenal in the months ahead, given that the global banking/financial system will probably stay fragile for a while yet, with bank restructuring likely to ensure that banks continue to pursue circumspect, albeit less restrictive, lending attitudes.

Look for the May BoE Inflation Report, due next week, to reveal a downward revision to the BoE's central case GDP forecast, compared with Feb.

Generali

tomterm8 wrote: »

What's the justification for more QE? As far as I can see, with inflation well over target, there is none. It would be different if CPI were undertarget but it is not.

Because otherwise the Government will crowd out even more private sector borrowing than already is going to be the case. The reason? The Government has painted the UK into a pretty nasty corner where printing money is the only way out.

Wookster

tomterm8 wrote: »

What's the justification for more QE?

The real aim behind QE is to try and reinflate the housing market.

Typical of ZanuLabour to completely miss the fact that all this money that is going to be lent out to corporates and individuals will have to be paid back.

More spending tomorrow's money today, in the hope that tomorrow doesn't come.

Reaper

Wookster wrote: »

Typical of ZanuLabour to completely miss the fact that all this money that is going to be lent out to corporates.

It is much more important the banks lend to companies (which generate wealth) than to individuals where it does little more than inflate house prices.

inspector_monkfish

Reaper wrote: »

It is much more important the banks lend to companies (which generate wealth) than to individuals where it does little more than inflate house prices.

except the Banks won't lend to the companies because they are worried they won't get their money back, if the company goes under (we're in a recession don'tchyer know;))

so the company doesn't get the funding it needs, and goes under anyway..... its a slippery road...:cool: