MPC Minutes, August 2012
There is – finally – a warning on the strengthening of Sterling:
4. Sterling had appreciated further, particularly relative to the euro. In trade-weighted terms, sterling had risen by almost 1% since the Committee’s July meeting and was 3.5% higher than at the start of the year. Although sterling remained over 15% lower than it had been five years earlier, it was around 5% higher than its average in 2011. A continuing appreciation could have a material influence on the outlook for growth and inflation in the United Kingdom.
Overall the MPC are stuck in “wait and see” mode again. This comment scared me:
38. The Committee discussed whether it was appropriate to expand or continue with the programme of asset purchases it had agreed at its previous meeting. Inflation was still slightly above 2% but likely to remain close to the target in the coming months. The level of underlying activity was perhaps not as weak as the GDP data for the second quarter had suggested and, with the squeeze on real incomes beginning to ease, some recovery in spending was probable. The FLS had the potential to improve funding conditions for banks materially and to encourage lending, thus providing some support to both demand and supply. These effects might be particularly marked if the FLS allowed some households and companies to borrow who had previously been unable to obtain bank credit. Set against that, the FLS might prove less effective if uncertainty and risk aversion among households and businesses were the dominant factors holding back spending in the current environment. These same factors might also limit the effectiveness of additional asset purchases.
My emphasis on the “central bank impotence” view. There is so much uncertainty that asset purchases might not be effective.
And this beauty from the resident hawks:
For some members the decision [on more QE] was nevertheless more finely balanced, since a good case could be made at this meeting for more asset purchases. For those members [Ben Broadbent and Spencer Dale] who had voted against the expansion of the programme at the previous meeting, there were potentially costs to reversing the previous month’s decision.
What the hell? Doing more QE this month is “reversing” the decision to do some QE last month? And that risks what exactly? That the central bank looks really stupid? Our central bankers would rather not be seen reacting to “events” and changing course, month by month?
I think somebody should remind Messrs Broadbent and Dale that their comments in the MPC meetings are a matter of public record. And if they are worried about the central bank looking stupid, it might be better for them to shut up and, preferably, resign their positions.