UK Monetary Policy Committee Nov 2009 Summary of Meeting & Decisions

Peterborough, United Kingdom (PressExposure) November 15, 2009 -- Monetary Policy Committee Meeting held on 4 & 5 November 2009 - before turning to its immediate policy decision, the Committee discussed financial market developments; the international economy; money, credit, demand and output; and supply, costs and prices. Following are the summarised minutes.

Financial markets • The price of many assets had increased substantially since the low in March 2009. But during the past month most prices had been little changed. • Equity prices in the UK had fallen by around ½% over the month but remained well above their levels in March 2009. • Short-term sterling interest rate expectations were broadly unchanged over the month. UK government bond yields had risen slightly. • Sterling had risen by nearly 4% over the month.

The international economy

• The world economy had continued to show signs of recovery but the level of global economic activity as a whole remained significantly depressed. • Strong growth persisted in a number of Asian economies and the US GDP had grown by 0.9% in the third quarter - its first increase since 2008 Q2. • Euro-area GDP had declined by just over 5% from its pre-crisis peak through to the second quarter. Output has probably increased since then although it is uneven.

Money, credit, demand and output

• The growth rate of household and non-financial companies' money balances had not changed much between August and September. • The flow of credit to households and non-financial firms had remained subdued. • The ONS had estimated that GDP had fallen by 0.4% during the third quarter, a significantly weaker outcome than the Committee had expected in August. • Industrial production had declined by 0.8% over the quarter, with manufacturing output little changed. Activity may have picked up towards the end of the quarter. • Households had reduced their consumption substantially over the past year or so. • Retail spending and consumer confidence had picked up during Q3 and in October, possibly heralding some stabilisation in consumption in coming quarters.

Costs and prices

• CPI fell to 1.1% in September. • Whole-economy earnings growth remained weak. • The number of people employed had declined by 45,000 in the three months to August, substantially less than the decline of 269,000 in the previous three-months. • Employment surveys continued to suggest that the rate of job shedding had slowed. That had been accompanied by further falls in average hours worked.

November GDP growth and inflation projections

• The considerable stimulus from the past easing of policy, including asset purchases, and the depreciation of sterling was expected to lead to a recovery in activity. • The supply of bank credit would probably be constrained for a protracted period. • Business investment was likely to remain weak. • The interaction of these factors pointed to a slow recovery in economic activity. • Inflation was likely to rise sharply above the 2% target in the near term, due to higher petrol prices and the reversal of the VAT reduction • The near-term prospects for inflation were more uncertain than usual with uncertainties about the degree of spare capacity in the economy. • The Committee judged that inflation was, on balance, more likely to be below the target than above it for most of the forecast period.

The immediate policy decision • The MPC agreed to maintain the bank rate at 0.5%. • There were differences of view among Committee members on whether the asset purchase programme (quantitative easing) should be increased. • The MPC voted to finance a further £25 billion of asset purchases, bringing the total to £2000 billion with purchases to be complete within the next three months.

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Press Release Submitted On: January 14, 2010 at 11:48 am
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