United Kingdom: Bank of England Minutes & Prime Minister’s Question26 January, 2011, 21:41. Posted by Zarathustra
Tags: Bank of England, David Cameron, Economy, Ed Miliband, United Kingdom
A day after the ugly GDP growth figure of the United Kingdom, the Bank of England Minutes for the latest rate decision was out earlier today. The Bank did consider the case for increasing interest rate in the January meeting as inflation has been consistently high above the 2% target while they judged that the economic recovery was on track (which turned out to be false yesterday). Two of the members supported an immediate raise of Bank Rate, while one of the members suggested that the bank should expand the asset purchase programme, a.k.a. quantitative easing. Of course, as we all know, the Bank Rate was maintained at 0.5% and asset purchases were maintained at £200 billion.
Also on today’s agenda was the amusing Prime Minister’s Question Time (PMQ). After yesterday’s ugly GDP number, the Leader of Opposition Ed Miliband MP crushed the Prime MInister David Cameron MP. Ed Miliband began his 6 questions by asking:
Can the Prime Minister explain to House, what, in his view, is the cause of yesterday’s disappointing growth figures?
While Ed Miliband kept asking about growth strategy and whether the coalition government will change course, David Cameron kept saying about the need for cutting deficits, and said:
If you don’t deal with your debt, you will never have growth!
In response, Ed Miliband said:
If you don’t have growth, you can never cut the deficits!
My take is this: on the whole, yesterday’s ugly GDP figure helped the Bank to make its case for maintaining interest rate at 0.5%. Despite the apparent risk of slipping right back into recession, the Bank of England is confronting the situation where growth is slow or even negative while inflation is high. They have very little room to expand quantitative easing and at the same time cannot increase interest rate substantially. As for the government, the Prime Minister is set to stick to the original plan to cut deficit. Whether cutting deficit when growth is negative is a wise thing to do would be questionable, and now it looks like it wasn’t. Overall, I am currently rather pessimistic on the UK economy.