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What the Bank of England's minutes say - and what it means

You liked our last attempt to explain what is going on at the Bank of England, so we thought we'd set our jargon-buster on  the most recent decision to keep interest rates at an all-time low.

What the Bank of England's minutes say - and what it means

You liked our last attempt to explain what is going on at the Bank of England, so we thought we'd set our jargon-buster on the most recent decision to keep interest rates at an all-time low.

Every month, the Monetary Policy Committee (MPC) – five men employed by the Bank and four other leading economists – meets to determine the Bank of England’s base rate of interest, their primary tool in meeting the 2% inflation target

Two weeks ago, they decided to keep the official interest rate - which banks use to set mortgage and savings rates - at a record low of 0.5%.

Today they published minutes of their discussion. The minutes are eagerly awaited because they tell us how the committee voted and why.

The minutes are scoured for any clue that the majority of MPC members might be ready to change their stance.

Unfortunately, this vital information is shrouded in language that means you need a degree in understanding gobbledygook to make any sense of the monthly briefings.

So, as with the Inflation Report released last week, we’ve put it through our dejargonifier (patent pending) to see what it means.

The immediate policy decision

Click on individual phrases to see what they mean, or hit the 'Translate to plain English' button to see the whole text transformed in one fell swoop.

Most members agreed that the balance of risks to inflation in the medium term relative to the target had moved upwards in recent months and that the case for withdrawing some of the current exceptionally accommodative monetary policy had consequently been strengthened. With inflation twice as high as it should be even we can see – well most us can – there might be a case for trying to do something to rein it in. For three members, the case for removing some monetary stimulus at this meeting was compelling. In fact three of us think the time to act is now.

For those members, the upside risks to the medium–term inflation outlook from global inflationary pressures and the possibility that inflation expectations would move up outweighed the downside risks to inflation associated with uncertainty about the strength of the recovery and the possibility of persistent spare capacity. Those three (and let’s be upfront, it was Andrew, Spencer and Martin) believe that above target inflation could make some people worry that we’re not doing our job properly. The three of us think that is a bigger risk than that inflation might undershoot the target.

In part, this reflected a concern that the level of demand consistent with achieving the inflation target might be lower than previously thought. It might even be the case that the Bank’s understanding of what causes inflation is deeply flawed.

Two of those members favoured only a small tightening in policy, given the uncertainty about the economic outlook. Two of us voted for just a little increase since we might be wrong and a move could throw the UK back into recession.

The third member concluded that a larger reduction in the degree of monetary stimulus had now become appropriate. One of us – yeah you guessed right, it was Andrew – said we’ve dawdled so long and he’s been right all along so we should really go for it and lift rates to 1%.

That member thought that there was mounting evidence that firms were able to pass on cost increases to the prices they set and noted also that nominal domestic demand had been growing for some time at near to the top of its typical range prior to the recession. In that member’s view it was significantly more likely than not that inflation would overshoot the inflation target in the medium term. After all it’s clear that companies have been doing a pretty good job of passing on their rising costs to their customers and therefore inflation will continue to be way above target for a good while yet.

Other members concluded that there was not yet a case for a rise in Bank Rate. Andrew hasn’t won us all over though. They had differing views about the likelihood of the upside risk associated with an increase in inflation expectations materialising. Some thought that this likelihood had grown, given that inflation was set to be higher, and above target for longer, than previously expected. Others considered that the chances of this risk materialising remained limited, given that the change in the near–term outlook could be clearly explained by reference to recent increases in energy, other commodity and world export prices. Not that the rest of us can agree where inflation is heading.

Of those members not favouring a rise in Bank Rate, some thought that the case for an increase had nevertheless grown in strength. Some of what Andrew says does seem to make sense. Then again some of us still think he is talking absolute tosh, since most of the inflation in the UK is clearly down to the fact that world oil and food prices are soaring.

The Inflation Report projections implied that inflation was roughly as likely to be above or below target in the medium term, and those projections had been conditioned on a path for market interest rates which assumed an increase in Bank Rate around the middle of the year. Anyway, we already look pretty silly for letting inflation get way above target so what’s the harm in waiting a bit longer? After all, we don’t want to be made famous for being the people that threw the UK into a Japanese style lost decade.

Given the potentially disruptive impact of reversing any immediate change in Bank Rate, there was merit in waiting to see indicators of how the economy performed at the start of the year to help assess whether or not the decline in GDP in the fourth quarter presaged sustained economic weakness. A rise at this juncture could damage household and consumer confidence, which remained fragile. And while Andrew talks a good talk he might be wrong and all the retail magnates might be right. Maybe a small rate rise would terrify Britain into stopping shopping altogether.

For one member, the balance of risks to inflation continued to warrant an expansion of the Committee’s programme of asset purchases, financed by the issuance of central bank reserves, because it was likely that inflation would fall to below the target in the medium term. And Adam does keep banging on about why we need to do more to stimulate the UK. This member believed that the impact of short–term inflation expectations on future prices and wages would be lower than assumed in the MPC’s February Inflation Report projection, and that consumption also would be lower, both pushing down on medium–term inflation. He certainly makes sense when he points out most of Britain’s workers have got as much chance of getting a pay rise this year as England has of winning the Rugby World Cup.

This member acknowledged that a sustained upward trend in global demand prospects or a shift in sentiment against sterling could outweigh the domestic forces pushing down on inflation. Though even Adam admits he could be wrong if the world economy keeps on getting stronger or the market starts to take a pop at the pound.

Regarding Bank Rate, six members of the Committee (the Governor, Charles Bean, Paul Tucker, Paul Fisher, David Miles and Adam Posen) voted in favour of the proposition. Three members of the Committee voted against the proposition. Andrew Sentance preferred to increase Bank Rate by 50 basis points. Spencer Dale and Martin Weale preferred to increase Bank Rate by 25 basis points. Regarding the stock of asset purchases, eight members of the Committee (the Governor, Charles Bean, Paul Tucker, Spencer Dale, Paul Fisher, David Miles, Andrew Sentance and Martin Weale) voted in favour of the proposition. Adam Posen voted against the proposition, preferring to increase the size of the asset purchase programme by £50 billion to a total of £250 billion. Basically, we still can’t agree on anything.

3 comments so far. Why not have your say?


Feb 23, 2011 at 18:16

We pay them to do a job, why can't they tell us in plain english what they are doing without the need for a translation?

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Feb 23, 2011 at 18:24

What I meant to say was:

Members of the general public would fiscally support the MPC panel through the UK taxation system consider that a more consise and direct method of communication should be adopted by the MPC. This would lead to a greater general understanding and removal of translation requirements.

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Mary Hamilton (Citywire)

Feb 23, 2011 at 18:28

@Jonathan - Brilliant.

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