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November 23, 2005
The Bank of England On Hold
Yesterday we received the minutes from the last meeting of the Federal Reserve's monetary policy committee. Today the news is the minutes from the Bank of England's November meeting. Some details, from the London Times Online:
The Bank of England’s Monetary Policy Committee was so unanimous in its view not to change interest rates at its meeting earlier this month, that they did not even discuss the matter, according to the meeting minutes published this morning.
The MPC meeting on November 9-10, which had access to the economic forecasts within the central bank’s quarterly Inflation Report at the time of the meeting, said the risks around the central projections were evenly balanced, but that the uncertainty around the near-term profile for inflation was more than usual.
Against that backdrop, the Committee agreed to maintain the repo rate at 4.50 per cent," the MPC said.
But the unanimity does not mean the MPC is being decisive, according to analyst Howard Archer, of Global Insight. "The 9-0 vote and general tone of the minutes confirm that the Monetary Policy Committee is firmly in 'wait and see mode' at the moment," Mr Archer said.
Here's the outlook in the words of the MPC, from Bloomberg :
Policy makers reached their decision in light of new projections published on Nov. 16 that showed inflation would hit its target of 2 percent within two years and economic growth in Europe's second-biggest economy would gradually recover. Governor Mervyn King said in a press conference that given the inflation projection it was "perfectly reasonable'' to keep the benchmark rate on hold.''...
"There were signs that output growth in the second half of the year would be a little stronger than in the first half,'' the minutes said. "There was also considerable uncertainty about the impact of higher energy prices on inflation both in the recent past and the immediate future.''
What's the message?
"The message is that interest rates are on hold for now,'' Adam Chester, chief economist at HBOS Treasury Services plc in London said in a telephone interview. "Genuinely, they have very little idea about growth and inflation next year. There are risks to both sides.'...
Some investors are speculating the central bank will pare its benchmark rate again since it lowered its projections for inflation and growth over the next two years.
The implied rate on the interest-rate futures for June was 2 basis points higher at 4.51 percent as of 10:04 a.m. in London, which compares with 4.56 percent on Nov. 16.
The minutes indicate rates are now set to stay unchanged into the New Year.
Experts are split on whether rates will rise or fall in 2006. The last change was August's cut to 4.5% from 4.75%.
Some economists predict rates will be lowered again next year to aid the under-pressure manufacturing sector and lift retail sales, while others point to a rise to prevent any inflationary pressures.
In related news, the Times Online reports that "confidence is back" in the UK housing market:
British homeowners were handed some more good news this morning when the latest housing market survey from Rightmove, the property website, suggested that house prices have now risen for two months in a row.
In an echo of recent bullish surveys by mortgage lenders such as the Halifax, Rightmove said house prices rose by 0.8 per cent in the four weeks to November 12 - building on a 0.5 per cent rise during the previous month...
"This is not a return to a boom market, but the arrival of the long-awaited soft landing. It is also a reflection of the unseasonably high sales reported by estate agents during the summer months working through to completion," Rightmove said...
Perhaps the uncertainty will lift sooner than later.
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A Few Euros More
The idea that there was a global savings glut now having gone out of fashion, some are presently arguing that what we have is an investment dearth (my own view is that these two effectively mean the same thing, since... [Read More]
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