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Bank of England 2013  Economy Q2

Bank of England 2013 Economy Q2

  • Posted: Jun 13, 2013
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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.

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Bank of England 2012 Economy Q4

Bank of England 2012 Economy Q4

  • Posted: Dec 18, 2012
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 The 2012 Q4 issue of the Bank of England Quarterly Bulletin is published today.

The Funding for Lending Scheme (FLS) was launched over the summer by the Bank of England and HM Treasury. It is designed to incentivise banks and building societies to boost their lending to UK households and businesses. Specifically, banks and building societies are offered funding with both the amount and its price depending on the amount they lend. An article in this edition describes in detail the thinking behind the scheme, including describing the mechanics of how the scheme will work. The Article notes that by reducing funding costs, the FLS should lead to more and cheaper credit flowing into the real economy than otherwise. Early signs have been encouraging: market funding costs for UK banks have fallen sharply and many loan rates have fallen. But given the usual lags from credit being offered to loans being made, the FLS is unlikely to materially affect lending volumes until 2013.
The UK economy has received a significant amount of monetary stimulus since the onset of the financial crisis. Bank Rate has been reduced to its lowest level in its 300-year history and the MPC has purchased £375 billion worth of assets since the launch of its asset purchases programme (or QE) in early 2009. But despite this significant amount of stimulus, broad money growth has been persistently weak since 2008, without any precedence in the past half century. So it is important to investigate what impact QE has had on broad money. The article – What can money data tell us about the impact of QE? – analyses the impact of QE by using a money accounting framework, focusing on the period during which the second round of asset purchases took place. It shows that the monetary impact of QE2 looks very similar to that of QE1, with around 60% of asset purchases having fed through into broad money. But whereas in QE1 most of the 40% ‘leakage’ could be explained by bank balance sheet repair, during QE2 the largest ‘leakage’ came from sales of government debt by banks. So whereas the first two rounds of QE seem to have had a similar proportionate impact on money, there is some evidence that the transmission mechanism of QE may have varied over time.
The financial crisis has powerfully demonstrated the need for a new approach to financial regulation. Major reforms are therefore under way, aiming to establish a UK regulatory framework which is more focused on the issues that matter and better equipped to deliver financial stability. These reforms will come into effect in April 2013. The Financial Services Authority will cease to exist in its current form, and its responsibilities will be transferred to two new bodies – the Prudential Regulation Authority (PRA), a part of the Bank of England, focusing on prudential issues; and the Financial Conduct Authority, a separate body, focusing on business and market conduct. Additionally, a Financial Policy Committee will be established within the Bank, focusing on the stability of the financial system as a whole. The article in this edition focuses on the Prudential Regulation Authority. It sets out the PRA’s role in the new regulatory framework, describing the PRA’s statutory objectives of promoting the safety and soundness of firms and contributing to policyholder protection. The PRA will advance these objectives by setting out expectations that firms should meet. The article goes on to describe how the PRA will supervise firms against these expectations. Importantly, it will do this using a judgement-based approach, and one that is both forward-looking and focused on the key risks posed to the stability of the UK financial system.
This edition also includes analysis from the 2012 NMG Consulting Survey which looks at influences on household spending and saving; an article on The role of designated market makers in the new trading landscape; and the regular Markets and Operations article reviewing developments in financial markets and the Bank’s official operations in the period between the previous Bulletin and 26 November 2012.
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