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Bank calls unprecedented meeting of economists
The Bank of England has summoned the City's leading economists to an unprecedented meeting in Threadneedle Street, as the pound plunges amid growing confusion over its radical Quantitative Easing (QE) policy.
By Edmund Conway and Angela Monaghan
Published: 9:00PM BST 23 Sep 2009
The Bank will host a seminar of all London's major economists next Tuesday – the first time it has invited them in en masse in recent memory – in what has been construed as a sign that it fears market participants are starting to lose faith in its efforts to pump cash into the economy. The move has also sparked speculation that it is poised to announce a major change to the monetary policy framework, although insiders dismissed such suggestions.
It came after the minutes from the Bank's latest Monetary Policy Committee meeting revealed that the idea of cutting the interest rate banks are paid on the reserves they hold there was not discussed this month. The pound has lurched lower in recent weeks, thanks in part to speculation that the Bank will impose charges on banks for holding excessive amounts of cash in reserve at its vaults. Under QE, it is pumping £175bn into the economy, but much of this cash is sitting in banks' reserve accounts rather than being recycled and flowing around the broader economy.
The suspicion that the Bank will soon take action to mitigate this has pushed down market interest rates sharply and contributed to an almost 5pc fall in the pound against other leading currencies. It has caused gilt prices and short-term interest rates to fluctuate wildly in recent weeks.
The Bank's seminar, chaired by deputy Governor Charlie Bean, alongside chief economist Spencer Dale and markets director Paul Fisher, is intended to clear up this confusion. It sparked anticipation in the City not merely because the Bank has a reputation for extreme secrecy, but because some suspect it may come alongside an announcement over the Bank's reserves policy. Others suspect the Bank is concerned that many think either that QE amounts to printing money, much as Zimbabwe and Weimar Germany did, or that it simply is not working.
However, insiders insisted that although the meeting was unusual, it is merely intended to mark six months since the policy began.
In yesterday's minutes, the MPC revealed that its nine members had voted unanimously to leave interest rates unchanged at 0.5pc and the QE total at £175bn, although both the Governor, Mervyn King, and external member David Miles said that "a larger asset purchase programme could still be justified." In a separate speech, MPC member Kate Barker said that the months ahead would be a critical test of whether a recovery was likely to be maintained.
She added that, even as growth picks up, rising unemployment will eliminate the "immediate prospect of a 'feel-good' factor".
She also indicated that low interest rates and Quantitative Easing would remain in place for the foreseeable future, saying: "As the expected recovery becomes established, monetary policy will need to be sensitive to the concern that too rapid an adjustment in private sector balance sheets could be provoked by premature monetary tightening."
More at link
Britain faces 'slow recovery and lower living standards
By Sean O'Grady, Economics Editor
Wednesday, 23 September 2009
Declines in investment and spending will hold back growth, warns CBI leader
Britain's economic recovery will be "fragile, slow and protracted", the Confederation of British Industry (CBI) predicted yesterday.
While the employers' organisation seems confident that the UK has emerged, technically, from recession in the past few months, it stressed that 2010 would be a "tough" year economically, with falling living standards and growth that would actually fall back slightly in the new year, fuelling fears that the UK could experience the much-feared "double dip" or "W-shaped" recession.
"We do worry that it is going to be weak," said the CBI's chief economist, Ian McCafferty. "As the stimulus is withdrawn it leaves the economy at risk of a further slowdown."
Overall, the CBI forecast that GDP would shrink by 4.3 per cent in 2009 and grow by 0.9 per cent in 2010. It sees unemployment peaking at three million in the second quarter of next year.
Richard Lambert, director general of the CBI, added: "Armageddon has receded a bit over the horizon. The outlook is improving as the UK draws strength from quantitative easing, a weak pound and a recovering global economy. Although growth this quarter should mark the end of the recession, conditions will remain tough for some time yet and it is difficult to see where demand growth will come from."