Benchmarking Consultancy Summary of the Bank of England Monetary Policy Committee Meeting Minutes October 2009

Monetary Policy Committee Meeting held on 7 & 8 October 2009 – before turning to its immediate policy decision, the Committee discussed financial market developments; the international economy; money, credit, demand and output; and supply, costs and prices. Below are the summarised minutes.

Financial markets

  • The price of many assets had increased again over the month. There had also been continuing signs of improvements in longer-term funding markets for banks.

  • Equity prices in the UK, the euro area and US had risen. The rise of about 50% since March still left them at least 25% below pre-crisis highs.

  • Short-term sterling interest rate expectations had been volatile over the month.

  • Sterling had fallen by nearly 5% over the month, roughly equally across currencies.

The international economy

  • It was likely that the world economy would expand by more during the second half of 2009 than had been previously anticipated although world demand and trade levels remained weaker than a year ago.

  • Despite some positive signs and initiatives such as car scrappage schemes in a number of countries, the durability of the global recovery remained unclear.

Money, credit, demand and output

  • The money supply data provided some evidence on the extent to which money had begun to flow through from institutional investors.

  • The three-month annualised growth rate of non-financial companies’ money holdings had picked up in recent months and the growth of households’ supply had also increased in August.

  • Despite the decline in industrial production in August, available evidence pointed to some growth in the second half of the year.

  • Private sector domestic demand had declined more sharply than output during the second quarter, and it was possible that consumption and investment would decline further during Q3.

  • House prices had risen in recent months according to both the Halifax and Nationwide indices.

  • Business investment had fallen by nearly 20% in the first half of 2009, a large fall by comparison with previous recessions.

Costs and prices

  • The near-term inflation profile was still likely to be volatile, with base effects from movements in petrol prices a year earlier and the prospective reversal of the cut in VAT set to boost inflation.

  • Whole economy average earnings growth again remained weak. In the three months to July, regular pay had been 2.2% higher than a year earlier. Settlements remain subdued and a significant proportion of recent private sector pay settlements had been pay freezes or cuts.

  • The decline in employment was judged as materially less relative to output than in previous post-wart recessions.

The immediate policy decision

  • Overall, the evidence suggested that the effect on asset prices had been of the type that the Committee had anticipated when it launched the asset purchase programme (quantitative easing) and had been substantial.

  • There were differences of view among members of the Committee on the balance of risks to the medium-term outlook for inflation.

  • The MPC unanimously agreed to maintain the bank rate at 0.5%.

  • The MPC also voted to continue with the programme of asset purchases totalling £175 billion (quantitative easing) financed by the creation of central bank reserves.

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About the Author

Paul Hajduk is the Managing Director of PAYdata Ltd. They offer a range of creative solutions to meet a company’s unique reward requirements. Visit www.paydata.co.uk or call 44 (0)1733 364070 discover their complete range of services including help with managing pay reviews.

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