Currently, policy makers at the Bank of England (BoE); voted to hold the benchmark interest rate unchanged at its record low of 0.5%, this month; as well as continuing their APF program. However, the vote came 6-3 for expanding the program with 50 billion pounds, whereas some members asked for a 75 billion pound increase to reach a total of 200 billion pounds.
The BoE cut borrowing costs by 4.5% since October, to revive the economy that suffered tremendously from the global economic downfall. However, it adopted unprecedented methods of quantitative easing to accelerate the recovery pace, through supporting markets with the adequate liquidity to spur lending, and thereby spending and consumption. Gordon Brown gave the BoE permission to spend up to 150 billion pounds on buying bonds. Nevertheless, the BoE chose to use only 75 billion pounds, before raising them to 125 billion pounds then to 175 billion pounds.
During the minutes, there has been an argument in regards to expanding the program. The majority (6 members) favored increasing the bond purchasing program with the 50 billion pounds announced recently. They mentioned that raising the program over the 50 billion pounds should be accompanied by a similar decrease in interest rate, to keep the inflation rate within the targeted level. There is no need to further expand the program, since the economy is already showing improvement, ever since they launched the program.
The economy decreased the pace of contraction in the second quarter to 0.8%, compared with 2.4% contraction in the first quarter. In addition, PMI services and manufacturing showed expansion exceeding the 50 barrier. Thus, since the economy is on the right track, there is no need for further expansion in order to avoid suffering from high inflation rates after the recovery. Policy makers are expecting the economy to grow again by the second half of the current year.
The minority, including Mervyn King, argue that there should be expansion to the program, since the risks associated with the increase are so far lower than being reluctant and spending less. King claimed that a strong monetary policy would raise confidence and accelerate recovery. The yearly CPI, seen yesterday, stood unexpectedly at 1.8%, indicating that there still are deflation risks and threats that the rate would remain below the 2% target for an extended period of time. King expects inflation remaining 1% this year, and will return to the target by the end of 2012.
Moreover, the Jobless rate climbed to 7.8%; signaling the highest since 1995, which shows that the economy is still suffering from the recession and is in need for stronger interventions to shore it up. On the other hand, the financial sector is still suffering from the credit crisis. Darling, the British finance minister, mentioned before that they must put strict restrictions on the financial sector and allow clients to be aware of what is happening with banks. Darling vowed to bring more competition to the markets in the financial system, where non-banking institutions can offer services to citizens.
For bad or for worse, there is a split between policy makers whether to expand the bonds purchase program, to accelerate recover and support the economy that is still imbalanced, or to hold spending at the current level, to avoid future inflation risks. In contrast, the ECB is taking confident steps toward recovery and it managed to show the strongest growth GDP in the second quarter, till now. Thus, we have to wait and see which team is right and which is wrong!
The BoE cut borrowing costs by 4.5% since October, to revive the economy that suffered tremendously from the global economic downfall. However, it adopted unprecedented methods of quantitative easing to accelerate the recovery pace, through supporting markets with the adequate liquidity to spur lending, and thereby spending and consumption. Gordon Brown gave the BoE permission to spend up to 150 billion pounds on buying bonds. Nevertheless, the BoE chose to use only 75 billion pounds, before raising them to 125 billion pounds then to 175 billion pounds.
During the minutes, there has been an argument in regards to expanding the program. The majority (6 members) favored increasing the bond purchasing program with the 50 billion pounds announced recently. They mentioned that raising the program over the 50 billion pounds should be accompanied by a similar decrease in interest rate, to keep the inflation rate within the targeted level. There is no need to further expand the program, since the economy is already showing improvement, ever since they launched the program.
The economy decreased the pace of contraction in the second quarter to 0.8%, compared with 2.4% contraction in the first quarter. In addition, PMI services and manufacturing showed expansion exceeding the 50 barrier. Thus, since the economy is on the right track, there is no need for further expansion in order to avoid suffering from high inflation rates after the recovery. Policy makers are expecting the economy to grow again by the second half of the current year.
The minority, including Mervyn King, argue that there should be expansion to the program, since the risks associated with the increase are so far lower than being reluctant and spending less. King claimed that a strong monetary policy would raise confidence and accelerate recovery. The yearly CPI, seen yesterday, stood unexpectedly at 1.8%, indicating that there still are deflation risks and threats that the rate would remain below the 2% target for an extended period of time. King expects inflation remaining 1% this year, and will return to the target by the end of 2012.
Moreover, the Jobless rate climbed to 7.8%; signaling the highest since 1995, which shows that the economy is still suffering from the recession and is in need for stronger interventions to shore it up. On the other hand, the financial sector is still suffering from the credit crisis. Darling, the British finance minister, mentioned before that they must put strict restrictions on the financial sector and allow clients to be aware of what is happening with banks. Darling vowed to bring more competition to the markets in the financial system, where non-banking institutions can offer services to citizens.
For bad or for worse, there is a split between policy makers whether to expand the bonds purchase program, to accelerate recover and support the economy that is still imbalanced, or to hold spending at the current level, to avoid future inflation risks. In contrast, the ECB is taking confident steps toward recovery and it managed to show the strongest growth GDP in the second quarter, till now. Thus, we have to wait and see which team is right and which is wrong!
