The Disinflation Will Continue Until Morale Improves
The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £325 billion.
It appears that the MPC have decided to carry through their little disinflation program.
Since the beginning of May, the 10 year breakeven RPI rate has fallen to 2.4% (an implied CPI rate well below 2%), a level that has not been seen since 2009. Was it naive to expect that the MPC might ease policy?
Whatever they are doing now, I find it hard to believe they are “targeting the [medium-term] forecast“. I would call it negligent, but it is closer to deliberate sabotage. They have exercised discretion and have decided to get the short-term CPI rate down. There should be mobs braying for blood on the pavements of Threedneedle Street.
The Guardian wrote this morning:
Bank of England policymakers are under pressure to take action on Thursday to cushion the recession-hit UK economy against the turmoil in the eurozone.
Most City analysts expect the Bank’s nine-member monetary policy committee to leave interest rates on hold at their record low of 0.5%, and hold back from unleashing a new round of quantitative easing (QE).
They are “under pressure”… yet are expected to sit on their hands?