Reaction To The Bank Of England’s News

Considering the stagnation that characterized United Kingdom last year, this year we cannot expect miracles to happen. Thereby, the recovery is expected to be slow, with the inflation staying around the values of 3% (CPI inflation rose at 2.9% in June).

Even if the outlook for the U.K.’s economy becomes increasingly positive from one quarter to another, the wounds left by the under target productivity which in turn caused a decrease in demand and also the inflation above target, determines the economists to be realistic and to give time to the economy in order to recover. Here comes the BoE, saying that is ready to intervene so as to make the economy get up and run again at the fastness registered before 2005. Maintaining its focus on price stability, BoE engaged to keep the highly stimulative monetary policy at the current pace for the next 3 years and to maintain the forward guidance as well, with a stable interest rate at the value of 0.5% until the unemployment rate drops to 7% (currently at 7.8%). Proving caution and responsability, BOE affirmed that is liable to intervene and change any of the above mentioned measures in case the inflation’s value will remain 0.5% above the 2% target for next 2 years and if the actual monetary policy will prove to seriously affect the financial stability or price stability.

Assuming that this context is being maintained, United Kingdom will get back to growth, perspective that boosted the investors’ confidence to buy the British pound today, as it was the top mover. The fact that Governor Mark Carney decided to clearly express the BoE’s plans for the future recovery has inspired even more confidence that this growth will really happen. In fact, is extremely important not to neglect the overall image of the Euro zone economy since it is really significant how it handles the current situation which affects all the member states.

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