Wednesday, Oct 14, 2009
Some people think it's all over............
Moneymarketing: Economy over the worst, says BoE
The Bank of England says the UK is over the worst of the global economic downturn. In a speech to the London Society of Chartered Accountants yesterday, Bank of England deputy governor Charlie Bean said the downturn has “troughed”. He said: “Early in the year, there were considerable fears that the recession would continue to deepen, but some of the worst downside risks look unlikely to crystallise.” Bean said a drop in gilt yields, the biggest rise in equity prices over six months in three hundred years, the issuance of £60bn of corporate bonds and Libor’s return to base rate levels suggest that the economy is improving, in part thanks to the Bank’s quantitative easing scheme.
Posted by jack c @ 05:21 PM (568 views) Add Comment
10 Comments
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1. Dave said...
A drop in gilt yields signals that the worst is not over. Rising gilt yields and interest rates would signal the worst is over.
The biggest bear market rally in three hunded years signals much worse things to come.
We're in this mess thanks to the BOE monetary policy.
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3. Smuf said...
Excellent news! Now the BoE can stop QE before reversing it next year.
4. The B said...
What about the budget deficit...spending cuts and employment..the pound down the pan...all QE has done is pump up a bubble in the stock market
5. Errol Morris said...
so the worst is over, if i get this right everyone is now doing so much better or at least heading that way,"ok then" why am i not felling it, is it because i do not earn more than one hundred thousand a year if so i think i am not alone. is it better that for most people a pay freeze or a pay cut if they are lucky enough to keep thire job is lightly, and for the average Londoner to even think about buying a house they would have to earn at least seventy thousand pounds and have saved for at least ten years to obtain a deposit. i don't think i am alone when i say the mass disenfranchised are rapiedly loosing all patience and all hope of ever acheiving anything like a life in this country, and lets not get started on how the masses feel about the unobtainable family life as it is no longer possible. i think most people, by which i mean the average twenty- thirty thosand pound earning middle aged man and woman is hopeing that government will let markets do thire own correcting let house prices plumet let companies fold all in the hope that a new start can begin.
6. quiet guy said...
The thisismoney.co.uk site also reported this with a slightly different slant:
http://www.thisismoney.co.uk/news/article.html?in_article_id=491872&in_page_id=2
A few quotes:
"'The rise in asset prices and the recovery in confidence since the start of the quantitative easing programme have been significant,' Bean said. Bean's comments came against a background of falling inflation in Britain, prompting market speculation that a further round of printing money, beyond the £175bn already authorised by the government, could be safely undertaken."
"Analysts believe the Bank may intensify its monetary easing to avoid Britain falling into a downward cycle of deflation with falling prices, wages and asset values."
"The Bank could exit the programme by selling back bonds to the private sector or holding them on its own account to maturity."
This is the first MSM article I know of saying that the BoE might not sell the bonds purchased with QE funding - exactly as stated by our contributor 'paul' a day or so ago. I'm not sure if the assets referred to in the article include property or not but the motives for pumping cash into the economy to support prices is obvious.
7. icarus said...
Mr Bean takes a holiday in cloudcuckooland.
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9. fallingbuzzard said...
Thats exactly as I understood it so its no change at all. I don't think they ever said that that their primary approach was to sell bonds back to the market. The primary approach is to let the assets mature. If inflation starts to rear its head, the bank will raise interest rates to control inflation and this works very well and much better than when you try and reduce them. Selling back bonds would have a similar effect but reduce the available money so thats not desirable. The Bank was also very specific about the control that would be exerted to keep inflation in target. If raising rates doesn't work (I think it will actually because it will be so painful that it will drag inflation and consumption down), but say it doesn't then they would buy back bonds and it would be pretty easy to do at that point since the fiscal defecit would be lower. So no change and the fact that they are doing it this way is giving the bond market quite a lot of comfort. If they let inflation go, say up to 3-4%, the bond market will squeal if there's been no fiscal tightening or rate moves. Personally, I think rates are going to move upwards far quicker than even the smartest economists are predicting and I'm sure they'll have moved up and QE been curtailed quite a bit before the election. Gordon needs it to prove that the economy is recovering so that's what he'll do at any cost.
http://www.bankofengland.co.uk/monetarypolicy/pdf/govletter090305.pdf
http://www.hm-treasury.gov.uk/d/apfgovletter090129.pdf
10. fallingbuzzard said...
Why I think they'll move upwards is oil price.