Interest Rate

  • Previous vote 1/9/2014
    Held at 0.50%
    (BoE Minutes PDF)
  • Latest vote 2/6/2014
    Held at 0.50% (statement)
    Asset Purchases remain the same
  • Next meeting:
    3/14/2014

Headlines


Assessment

Feb. 12 - Bank of England Inflation Report

BoE Governor, Mark Carney struck a positive tone when speaking of the UK economy. Economic recovery is expected to be faster this year than previously thought, and inflation has come back to 2.0%.

Carney also noted a key change in forward guidance: The bank has been keeping away from considering a change in interest rate as long as the jobless rate is above 7.0%. Carney announced that the bank is moving away from this criteria.

Carney mentioned “spare capacity” quite a bit. When current spare capacity is absorbed, the bank will consider raising rates, but must do it slowly because of much headwind to the economic recovery.

As far as the asset purchase program. The 375 billion pound level will remain until the first rise in bank rate, which requires spare capacity to be absorbed further.

Watch the 2/12 BoE Inflation Report (flash required)

Feb. 6 - In a familiar tone, the bank voted to keep the Bank Rate at 0.5% and the asset purchase program at £375b. Nothing new here.

Jan. 9 - Inflation decelerated to 2.1%, and jobless rate is at 7.4%. However, the BoE will keep the interest rate at 0.5% at least until the jobless rate falls to 7.0%. The Bank also decided to maintain the pace of asset purchase program at 375 billion pounds. Nothing new here. Though, as jobless claims fall, we should start to expect some change in tone regarding Asset purchases and/or interest rates. Here’s the bank on its immediate policy decision:

The Committee set monetary policy to meet the 2% inflation target in the medium term, but in a way that helped to sustain the recovery. In pursuit of that objective, the Committee had, at the time of its August Inflation Report, provided guidance regarding the path of monetary policy. That guidance stated that the Committee did not intend to raise Bank Rate from its current level of 0.5% or to reduce its stock of asset purchases, at least until the LFS headline unemployment rate had fallen to a threshold of 7%, subject to three ‘knockout’ conditions, relating to: the judged likelihood that inflation would not exceed 2.5% 18 to 24 months ahead; whether measures of medium-term inflation expectations remained sufficiently well anchored; and the impact of the stance of monetary policy on financial stability, as judged by the Bank’s Financial Policy Committee (FPC). – Excerpt from the BoE Meeting Minutes (pdf).

 

Learn about the Bank of England

Mandate

The Bank of England has 2 core mandatesmark-carney

1)      Monetary Stability

  1. Keep inflation on track to meet the 2% target

If inflation is more than 1 percentage point off on either side, the Governor of the Bank must write an open letter to the Chancellor of the Exchequer explaining why it is so and proposing what the BoE will do to bring inflation back to the target rate.

  1. Maintain policies, tools and infrastructure to implement policy and issue banknotes

2)      Financial Stability

All other strategies are under these two core mandates.

Structure : http://www.bankofengland.co.uk/about/Pages/structure/default.aspx

The Monetary Policy Committee (MPC) is the group responsible for setting interest rates and is made of nine members. The MPC meets throughout the month to go over reports and stats and assess the latest economic and financial conditions and developments.

In working towards its core purposes, the Bank is organized into four main divisions. The current structure was introduced in June 1998 to reflect responsibilities set forth in the 1998 Bank of England Act.

-          Monetary Analysis and Statistics: Provides the MPC with data to make monetary policy decisions.

-          Markets: Implements and supports the MPC’s decisions in the sterling money markets.

-          Financial Stability: Works with the HMTreasury and the FSA to sustain stability of UK’s financial system.

-          Banking Services: Provides banking services to the government and other financial institutions and central banks.

These 4 operational areas are supported by a Central Services division.

Members

The nine MPC members are currently:

Mark Carney, Governor
Charles Bean, Deputy Governor
Paul Tucker, Deputy Governor
Ben Broadbent
Spencer Dale
Paul Fisher
David Miles
Ian McCafferty
Martin Weale

Source: BoE

Here is a look at the latest BoE’s management structure:

http://www.bankofengland.co.uk/about/Documents/pdfs/structure.pdf