Below is the statement issued yesterday by the Bank of England’s Monetary Policy Committee. It defies comment because it runs out of facts after Line 2 of the first paragraph.
Paragraph 2 is no more that the usual retrospective “No shit, Sherlock” statement which has become the Bank of England’s trademark.
Within the statement, I have highlighted the words which give a clear indication of the overall wishy-washy tone which Mervyn King and the Monetary Policy Committee have made their own.
The £75 billion which is being pumped into the system is more-or-less an arbitrary figure and purely cosmetic – because it was deemed time for someone to take action.
Why Quantitative Easing? Because this is the only item remaining in the monetary toolbox.
Politicians and Central Bankers are out of ideas. This latest initiative is the Bank of England’s own version of Pin the Tail on the Donkey.
An increasing number of individuals who understand the mechanics of the global economic system agree that we are rapidly approaching a time when governments should simply guarantee bank customers’ deposits and allow certain banks to finally fail and introduce a more direct form of QE to stimulate production and encourage consumers to consume.
Attempts to stimulate an economy by filtering cash into moribund banks merely pushes the recovery horizon further into the distance.
MPC STATEMENT 6TH OCTOBER 2011:
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 increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion.
The pace of global expansion has slackened, especially in the United Kingdom’s main export markets. Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery.
In the United Kingdom, the path of output has been affected by a number of temporary factors, but the available indicators suggest that the underlying rate of growth has also moderated. The squeeze on households’ real incomes and the fiscal consolidation are likely to continue to weigh on domestic spending, while the strains in bank funding markets may also inhibit the availability of credit to consumers and businesses. While the stimulatory monetary stance and the present level of sterling should help to support demand, the weaker outlook for, and the increased downside risks to, output growth mean that the margin of slack in the economy is likely to be greater and more persistent than previously expected.
CPI inflation rose to 4.5% in August. The present elevated rate of inflation primarily reflects the increase in the standard rate of VAT in January and the impact of higher energy and import prices. Inflation is likely to rise to above 5% in the next month or so, boosted by already announced increases in utility prices. But measures of domestically generated inflation remain contained and inflation is likely to fall back sharply next year as the influence of the factors temporarily raising inflation diminishes and downward pressure from unemployment and spare capacity persists.
The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term. In the light of that shift in the balance of risks, and in order to keep inflation on track to meet the target over the medium term, the Committee judged that it was necessary to inject further monetary stimulus into the economy. The Committee therefore voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion. The Committee also voted to maintain Bank Rate at 0.5%. The Committee expects the announced programme of asset purchases to take four months to complete. The scale of the programme will be kept under review.
THIS is yesterday’s letter from the Governor of the Bank of England to the Chancellor of the Exchequer. Perhaps the letter-writing ceremony, together with ribbons on MPs’ coathooks into which they can hang their swords, ought to be consigned to the poubelle of history!
This statement about the British: ” Crap food but such LOVELY manners” should be rewritten: “Crap economic policy but such LOVELY letters and statements”