Wednesday, June 22, 2011
MPC 7-2 for no change, endorses sterling fall
Posted by David Smith at 01:30 PM
Category: Thoughts and responses

The Bank of England's monetary policy committee voted 7-2 for no change in Bank rate, as expected, with one of the seven, Adam Posen, voting for a further 50 billion of quantitative easing. The vote was as expected, with the more dovish Ben Broadbent replacing the hawkish Andrew Sentance. Even the two hikers, Spencer Dale and Martin Weale, acknowledged that growth was coming through rather weaker.

Two interesting aspects to the minutes. One was the risks to growth from the eurozone sovereign debt crisis: "While activity in the euro area as a whole had remained resilient, sovereign debt and banking problems could intensify, perhaps significantly, to the detriment of economic activity and the financial system."

Also of interest to me was that the MPC appears to accept that sterling's crisis-related fall is both necessary and here to stay. It said: "The sterling effective exchange rate index had been broadly stable since the beginning of 2009, suggesting that its earlier depreciation had been a step adjustment to the real consequences of the financial crisis and the necessity for economic rebalancing."

I disagree, and would argue that sterling's performance is closely linked to the stance of monetary policy. But it is good to have the view spelt out. More here.