Measures taken by the UK Government to revive the ailing economy have made life extremely difficult for savers and pensioners, but the measures like quantitative easing (QE) were necessary to save the broad economy, the incoming Governor of the Bank of England (BoE) said.
Mark Carney, who will become BoE's governor in July this year, said that all-time low interest rates have hit prudent households very hard, with pensioners among the hardest hit.
An explanation is needed from Bank of England to tell as to what was the reason behind their underestimation of steeply rising inflation. The VAT rates are going up and so is the price of oil. Commodity prices along with food ones are not very different.
That is the reason why the consumer price index (CPI) has reached a rise of 4 per cent. This is worrying since the figures are double of what had been expected this time. Even the Retail Price Index (RPI) has seen a rise and is up between 4.8-5 per cent. This index also includes the house prices.
Time is running out for the Governor of Bank of England Mervyn King in the wake of the weakness in the economy forces policy makers to endure rising inflation and abstain from raising rate of interest.
With sixty two economists in a Bloomberg News survey mentioning, that the bank will leave its benchmark interest rate at a record low of 0.5% today, investors have added to bets on a rise in the former year half. According to ex-rate setter DeAnne Julius the bank
requires to make the policy tight sooner than later or else have a threat of losing its credibility.
It is expected that the policy makers of Bank of England are going to have a meet on Thursday. That has raised fears in the market that rates are going to see a sharp rise since inflation is totally out of control.
One can also expect that the after effects of the last meeting of Bank's Monetary Policy Committee are going to come into play as at time there was an opinion of keeping a hawk-eye on the economy. Two the members had even called for a rate hike in between 0.5-0.75 per cent. Only one of the team members supported the idea of putting in more money into the economy.
Many experts are suggesting that now is a high time for getting a fix rate mortgage as the Bank of England could announce an increase in interest rate to fight back inflation.
The Bank of England left base rate at its record low of 0.5 percent this month, but an increase is believed to be just around the corner.
Once the base rate goes up, people with variable rate mortgages will have to face heavy payment bills.
Sir John Vickers, chairman of the Independent Commission on Banking, indicated the government could be suggested to split to Britain's high-street banks to protect taxpayers from future collapses.
Economist Vickers, former chief economist of the Bank of England, said that splitting banks into retail and investment businesses could better save the broad financial network. The suggestion indicates that banking giants like Barclays and Royal Bank of Scotland could be forced to restructure sometime in future.
The inflation forecast for the coming months have been augmented by the Bank of England on Wednesday. It has hence delayed the downward trend forecast last quarter to late next year.
Inflation is said to be standing at 3.1%, which according to the bank would rise to as much as 3.5 per cent by the end of the year.
This rise would however take place much before the bank would fall to back to current levels toward the end of next year, and would then back towards the target of 2% after that.
While rest of the members of the panel has raised concerns about Britain returning to recession, Andrew Sentance, Economist is believed to be the only member going the other way.
This member of the Bank of England's Monetary Policy Committee (MPC) is said to have called for an increase in the cost of borrowing in order to address the inflation concerns. He further has put forth that spending cuts pose no danger to the economic recovery.
Concerns over soaring inflation and the sluggish rate of economic recovery have baffled the members of the Bank of England's Monetary Policy Committee.
According to the minutes from the Monetary Policy Committee’s (MPC) rate-setting meeting for this month, one member has called for a £50bn more quantitative easing (QE) of the £200bn already completed in a view to consolidate the rate of economic recovery. Besides, a majority of them pointed that further stimulus would be required in the coming months.
Spencer Dale, the Chief Economist of the Bank of England made a public speech at Cardiff Business School, Wales, saying that the risk of going through inflation is currently at its highest. He also warned that the officials must be on their guard to fight the instability of the prices.
In his speech, Mr. Dale said that the risks would be less in the future, as they would be decreasing gradually. He also said that the recovery of the economy is going forward; still the officials at some point would be needed to step in.
Some of the policy makers of Bank of England are contemplating over infusing more finances into the economy, so as to give it a push, as there have been apprehensions about the fading UK economy.
More than one member of the committee debated that there is a threat of the economic slowdown, as revealed by minutes of the monetary policy committee's (MPC) September meeting.
As per the minutes, those few members, who expressed concern about the faltering economy, felt a need of one more stimulus to it, along with the check on the inflation.
Members of the Bank of England’s monetary policy committee have said that there’s a big possibility that the economy might need more push.
According to the last meeting’s minutes of the interest rate setting organization, there is a rising concern amongst some members of the committee that the economy is moving at a slow pace or running a likelihood of sluggish growth. Therefore, there might be a need for more action.
The Bank of England stated that the consumers are in no advantageous position of getting the benefit of low interest rates, as banks are more considered about safeguarding their capital reserves in the vogue of credit crunch.
Though, the interest rates are lower than the Bank's base rate of 0.5%, but still consumers have no say in it. In fact, in some cases the banks are charging new and expensive lending rates, reports the Bank in its quarterly bulletin.
According to Adam Posen, a member of the Bank's rate-setting Monetary Policy Committee, the Bank of England might go forward with the intention of cutting borrowing costs in particular regions of the financial system given that its program of acquiring Government securities prove to be a failure in stimulating development.
The next step to be taken by the bank, if assumed important, would be to move heavy duty credit easing, with particular sectors in mind, which is comparable to what the U. S. did with its housing markets.