American lessons for the Bank of England

Article Abstract:

The Monetary Policy Committee of the Bank of England has to assess why UK inflation is low although the economy is growing strongly. The Bank argues that this is because pound sterling is high and there is spare capacity, and that both factors are likely to change. US inflation has stayed low despite strong growth and this has been attributed to imports and higher productivity. These factors do not explain why inflation is low. It is difficult to tell whether inflation will rise, but a small rise in UK interest rates acts as insurance to prevent possible later and larger rises.

Prices

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Lies, damned lies and probability distributions

Article Abstract:

The Bank of England is presenting its forecasts in a new way, but faces the problem that forecasts are impossible to make accurately since too much data is needed. Accurate forecasts are needed for monetary policy, and the Bank of England may lose power if attention is focused on its errors. The bank is presenting its inflation forecast in terms of a band, in order not to expose itself to criticism that a particular rate forecast was wrong. This helps tackle criticism but does not solve the problem that it is difficult to make forecasts, yet they are still needed.

Forecasts and trends

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The next base rate question

Article Abstract:

United Kingdom interest rates are less likely to rise following instability in stock markets. UK unemployment looks set to increase and economic growth looks set to drop. The Bank of England is still concerned about inflation, and a rise in unemployment alone will not mean that rates will fall, since the Bank sees wage rises as cause for concern, and feels that unemployment could be above a sustainable level. It is not clear what this sustainable level may be, and unemployment could increase more rapidly than forecast by the Bank.

Interest Rates, Unemployment

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