Wednesday, August 17, 2011
9-0 at the Bank and a softer job market
Posted by David Smith at 05:00 PM
Category: Thoughts and responses

The Bank of England's August inflation report was dovish, and so were the minutes of its August meeting. Not so long ago the Bank was split 6-3 on the question of hiking rates, now it is back to 9-0, the two remaining monetary policy committee members who had voted for higher rates - Martin Weale and Spencer Dale - reverting to a no change position.

MPC members are worried about the global slowdown and very concerned about events in the eurozone. However, they ruled out taking action in anticipation of a eurozone disaster. The Bank is hugely uncertain about the outlook for growth and prospects for inflation.

This paragraph sums up that uncertainty: "Some members considered whether there was a case for increasing the degree of monetary stimulus by undertaking a further programme of asset purchases. Those members concluded that the case was not yet strong enough, particularly in light of the lower path for Bank Rate now implied by financial markets. Further asset purchases might nonetheless become warranted were some of the downside risks to materialise. Some other members remained particularly concerned about risks to the upside associated with a sustained period of above-target inflation. For them, plausible outcomes for productivity growth, company margins, the degree of spare capacity in firms, or import price pass-through could also result in inflation remaining elevated. But recent developments had weakened the case for removing some of the monetary stimulus." The minutes are here.

Meanwhile, the latest labour market statistics were downbeat, with the claimant count up by 37,100 in July to 1.56m, its biggest monthly increase since May 2009. The Labour Force Survey measure of unemployment rose by 38,000 to 2.49m, 7.9% of the workforce. An employment rise of 25,000 was insufficient to compensate for growth in the workforce.

In truth, the LFS measure of unemployment has been close to 2.5m for the past couple of years. Even so, these were softer numbers. More here.