The 2013 Q2 issue of the Bank of England Quarterly Bulletin is published today.
The onset of the financial crisis in 2008 brought an end to the ‘Great Stability’ period, making prospects for UK and global economic growth not just weaker, but more uncertain. Macroeconomic uncertainty: what is it, how can we measure it and why does it matter? focuses on how heightened uncertainty might affect the economy through a variety of channels – for example, depressing demand for goods and services as firms and households choose to delay spending decisions, or impairing the supply side of the economy by affecting investment decisions or credit provision. While uncertainty is not directly observable, this article presents a range of indicators based on data from financial markets, consumer and business surveys and media citations. Many of these indicators have remained elevated in recent years. And a simple empirical model supports the view that uncertainty has contributed significantly to the depth of the recent recession and weakness of the recovery.
Cross-border banking can have considerable long-run benefits, by diversifying the available sources of lending and borrowing. But such flows can also amplify risks in times of stress. Cross-border bank credit and global financial stability describes how cross-border bank lending contributed to the build-up in vulnerabilities before the recent crisis – in particular by generating mismatches on banks’ balance sheets of both currency and maturity – and exacerbated the bust once the crisis hit. The article then considers possible policy responses of central banks to prevent or mitigate such a scenario in the future, from the perspective of recipient countries as well as the global system as a whole.
The Old Lady of Threadneedle Street describes the origins of this popular name for the Bank – namely, caricature of the institution by the late 18th century political satirist, James Gillray. Promoting an exhibition that runs in the Bank of England Museum until the end of December entitled Cartoons and Caricatures, the article gives a brief historical context for the original ‘Old Lady’ cartoon before discussing some of the graphic satire of the Bank and its activities from the two centuries that followed. This includes the work of modern‑day political cartoonists such as Steve Bell.
Also in this edition: Do inflation expectations currently pose a risk to the economy? concludes that there is little evidence to suggest that inflation expectations have become less-well anchored to the target over the past year. Public attitudes to monetary policy reviews public awareness and satisfaction of monetary policymaking in the UK over the past year. It finds, for example, that in the latest survey more respondents thought that the Bank’s inflation target was about right than those who thought it was too high or too low.
Central counterparties: What are they, why do they matter and how does the Bank supervise them? is a primer on clearing houses (this article was pre-released on Monday 10 June). Finally, the regular Markets and Operations article reviews developments in financial markets and the Bank’s official operations in the period between the previous Bulletin and 24 May 2013.