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Resource Center » U.S. & International Recaps | Release Dates | Why Investors Care | Today's Calendar
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BOE Announcement
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Definition
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
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| Released on
7/10/08
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Change
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Highlights
As expected, the Bank of England kept its key interest rate at 5 percent as growth slows and inflationary pressures climb. The monetary policy committee last lowered interest rates at its April meeting. The MPC remains stuck firmly between a rock and a hard place -- pulled in two directions by the conflicting trends of faltering growth and rising inflation pressures, both of which have grown worse since the committee met in June. Evidence has piled up that the economy is sliding into the grip of a serious slowdown, if not an outright recession. Crucially, GDP was revised downward in the first quarter to 0.3 percent, just half the pace registered in the previous three months.
Recent economic data continued to weaken as the housing sector and with it, consumer confidence tumble. Both the manufacturing and services sector PMIs released last week showed activity below the 50 breakeven point for the first time since 2001. And newly released data on industrial and manufacturing output declined more than expected. The deepening slump in house prices continues to be a key factor in undermining growth and future prospects. House prices are declining but so far signs that house price woes are undercutting consumer spending have been pretty limited as evidenced by May's retail sales report that far exceeded the expectations of analysts.
The Bank's 5 percent lending rate is the highest among the Group of Seven nations while Japan's 0.5 percent is the industrialized world's lowest. The Bank issued no statement with the decision. Bank watchers will have to wait two weeks for the minutes of the meeting.
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Trends
![[Chart]](chart.gif)
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The Bank of England's primary goal is to contain inflation and it uses an inflation target to do so. The Monetary Policy Committee has been using the harmonized index of consumer prices for its inflation indicator - the CPI - since January 2004. The Bank's inflation target has been 2 percent since that time. 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. |
Data Source: Haver Analytics | Consensus Data Source: Market News International and Thomson Financial
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