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Resource Center » U.S. & International Recaps | Release Dates | Why Investors Care | Today's Calendar
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BOE Announcement
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Definition
The Bank of England Monetary Policy Committee consists of nine members. The Committee meets monthly for two days, usually during the first week in the month in order to determine the near-term direction of monetary policy. Changes in monetary policy are announced immediately after the meetings, but no details are available until the minutes are published two weeks later. Why Investors Care
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| Released on
5/8/08
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Change
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| Actual |
0bp
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| Previous |
-25
bp
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Highlights
As expected, the Bank of England kept its key interest rate at 5 percent. It lowered its rate by 25 basis points at its April meeting and appeared reluctant to reduce rates two months in a row. They undoubtedly wanted to emphasize that it is taking inflation threats seriously. Recent comments suggest that a majority of the monetary policy committee is committed to a gradual easing of interest rates. Lower rates appear to be a timing issue and not one of direction.
Recent economic data have been weak. For example, that the services sector PMI released earlier this week showed activity falling to its lowest level since March 2003 and a new low in the Nationwide Consumer Confidence Index. And industrial and manufacturing output both declined more than expected in March. However, these data are counterbalanced by continued higher than target inflation. The recent decline in the pound sterling and news on pipeline-pricing pressures are likely to have increased the MPC's anxiety on this front.
A new quarterly Inflation Report on which to solidly base the argument for a rate reduction will be released mid-month and will give MPC members more solid ground to base policy.
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Trends
![[Chart]](chart.gif)
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The Bank of England's primary goal is to contain inflation and it uses an inflation target to do so. The Monetary Policy Committee has been using the harmonized index of consumer prices for its inflation indicator - the CPI - since January 2004. The Bank's inflation target has been 2 percent since that time. Previously, the MPC used the retail price index excluding mortgage interest payments as its inflation indicator and a 2.5 percent inflation target. There has been a substantial spread between the two measures of inflation which can be traced to the way they are calculated. Among the key differences is the exclusion of council taxes and owner-occupied housing costs from the CPI. Arithmetic means are used to combine individual prices to construct the RPIX while geometric means that allow for substitution are used in calculation of the CPI. This formula differential accounts for nearly half of the difference in the two rates. |
Data Source: Haver Analytics | Consensus Data Source: Market News International and Thomson Financial
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