Thursday, August 4, 2016

The excitement of the Bank of England reveals her post-Brexit concern – Les Echos

The governor of the Bank of England, Mark Carney, pulled out the stops to try to reduce the uncertainty that has widened since the British decision to leave the European Union, 23 June. Determined to act quickly to avert the specter of recession haunting the business community, members of the Monetary Policy Committee have used the full range – almost – of monetary policy instruments at their disposal for the first time since 2009 they unanimously decided to reduce the key rate a quarter point to a record low of 0.25%, in order to “ improve financing conditions for households and businesses . ” The latter could be reduced to near zero by the end of the year “ if necessary .”

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The central bank also decided to increase by 60 billion pounds (71 billion euros) liquidity in the economy through the purchase of government bonds program. Additional 10 billion will be invested in corporate asset purchases. A revival of a practice initiated at the beginning of the financial crisis in 2009 but largely abandoned since. In total, quantitative easing is brought to 445 billion pounds. Finally, a financing system is restarted to provide banks with cheap funds

Video. The Bank of England seeks to reassure after Brexit

force deployment

This deployment force reveals a deep concern of the governor on the impact of Brexit. The shock of the announcement of a withdrawal of the UK from the European Union has caused, besides the fall of the pound by 10% on average since June 23, a sharp decline in activity in the industry , construction and services and gave a blow to consumer confidence. Yet unlike many economists, he does not see the country plunge into recession.

growth forecast downward

If it has revised sharply down its forecast for 2017 to 0, 8% instead of 2.3% expected in May, it relies on the continued growth of 2% this year. Between the two evils associated with the fall of the pound, a decline in activity on the one hand and a significant inflation risk on the other hand, ‘ the central bank chose to ignore the consequences on inflation and clearly focused on supporting the activity , “commented Jonathan Loynes, chief economist at Capital Economics. While households may pay this monetary easing by a less well-paid savings and higher prices imported consumer goods. Mark Carney, however, seems to doubt the effectiveness of these measures.

We have reached the limit of what a monetary policy can do.

Although he was convinced that “ without this range of decisions, growth would be lower and unemployment higher, he added that” the Bank of England can not fully offset the significant structural shock “that represents the output from the UK to the EU. “ We have reached the limit of what a monetary policy can do ,” added the BBC a former member of the Monetary Policy Committee, Andrew Sentance. “ The most important task the Governor said, is negotiating with European output and improving competitiveness.

Another part of British economic policy

Economists wonder about this other component, considered central to Britain’s economic strategy: “ what is desperately needed now , says Scott Corfe, director of the Centre for Economics and Business Research (CEBR) this is a revision fiscal policy. from big announcements on infrastructure, real estate, taxation would do wonders to reassure the public and foreign investors that everything is done to boost economic growth. “

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