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2009 Economic Calendar |
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Resource Center » U.S. & Intl Recaps | Release Dates | Why Investors Care | Today's Calendar
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The Bank of England Monetary Policy Committee consists of nine members. The Committee meets monthly for two days, usually during the first week in the month in order to determine the near-term direction of monetary policy. Changes in monetary policy are announced immediately after the meetings, but no details are available until the minutes are published two weeks later. Why Investors Care
Highlights
As expected, the Bank of England Monetary Policy Committee lowered its policy interest rate by 25 basis points to 4.5 percent after leaving the rate unchanged for the 11 preceding months. It follows a continued weakening in data, especially from the manufacturing sector. The higher borrowing costs, oil prices above $60 a barrel, stagnant house prices and rising unemployment are sapping consumer spending, which has fueled 52 straight quarters of growth. UK borrowing costs are the highest among the Group of Seven nations. The central bank's decision to hold rates on July 7 was carried by a margin of one, with four members of the rate-setting panel voting for a cut. Deputy Governor Rachel Lomax noted in a speech earlier this year that almost two-thirds of rate moves since 2001 have come in the same month as the quarterly Inflation Report is published. The next report, which will contain forecasts for growth and inflation, is due for release on August 10. In its statement, the Bank said
"In the first half of the year, output growth in the United Kingdom was subdued. Household spending and business investment growth have slowed. Although there are some signs of a pickup in consumer spending, downside risks remain in the near term. Looking further ahead, however, the rise in equity prices and the recent fall in the exchange rate should boost activity.
CPI inflation was 2.0% in June. Higher oil prices may raise inflation further in the short term. But, in the Committee's view, the slackening in the pressure of demand on supply capacity should lead to some moderation in inflation. Against that background, the Committee judged that a decrease of 0.25 percentage points in the repo rate to 4.5% was necessary to keep CPI inflation on track to meet the 2% target in the medium term."
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The Bank of England's primary goal is to contain inflation and it uses an inflation target to do so. Beginning with the January 2004 meeting, the Monetary Policy Committee is using the harmonized index of consumer prices for its inflation indicator, which is called the CPI. Its new inflation target is 2 percent. Previously, the MPC used the retail price index excluding mortgage interest payments as its inflation indicator and a 2.5 percent inflation target. There has been a substantial spread between the two measures of inflation which can be traced to the way they are calculated. Among the key differences is the exclusion of council taxes and owner-occupied housing costs from the CPI. Arithmetic means are used to combine individual prices to construct the RPIX while geometric means that allow for substitution are used in calculation of the CPI. This formula differential accounts for nearly half of the difference in the two rates. |
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