The Bank of England has updated its forward guidance policy (12 February 2014) in the light of the December unemployment figures, which showed a sharp drop to 7.1% - just short of 7% unemployment threshold set n August. Despite the unexpected fall in the unemployment figures, the Bank estimates that there is still sufficient slack in the economy to keep interest rates at 0.5%.
MPC member Martin Weale provided further clarification of the Bank of England’s ‘forward guidance’ policy when he addressed A-Level students at Quintin Kynaston Community Academy in London. Martin explained that the unemployment threshold did not meant that interest rates would automatically be raised if unemployment fell to 7%, only that it will review the situation.
Minutes of the MPC meeting held on January 9th and 10th were released today (Jan 23rd) and provided clear evidence that MPC members are shying away from further rounds of Quantitative Easing (QE). As the Committee pointed out, the underlying state of the UK economy is harder to gauge that usual given the one-off nature of the Olympic Games and the Diamond Jubilee celebrations. The view was that further asset purchases were unnecessary and may have a very weak effect on stimulating nominal demand.
October's official inflation figures for the UK, announced yesterday, took a turn for worst, and marked the end of period of falling inflation. CPI inflation now stands at 2.7%, up from 2.2% in September - which was the lowest rate since November 2009. The ONS reported that upward pressure on average prices came from increased university fees which kicked in this month. Undergraduate tuition fees in England for UK and EU students have risen to a maximum of £9000 for this academic year, contributing to an eye-watering rise in education costs of 19%. Other significant increases have come from food and non-alcoholic beverages, and transport costs. Rising...
