Friday, May 6, 2011

Bank of England keeps its rate at 0.5%. Lessons for the ECB?.

Yesterday (Thursday) the Bank of England decided to keep its interest rate at 0.5% inspite a March 4% annualised inflation rate and a whopping +10.7%. in March 2011 compared with March 2010 in the UK industrial producer prices gained (see Eurostat stats)

But it should be noted that 4% March inflation according to Eurostat stats (released back in April 15 annualised, ie March 2011 compared with March 2010), was down from 4.4% in February, (it was 4% back in J.anuary too).

According to economists, Producer Prices are an indication as to what inflation will be a few months later. Thus the 10.8% IPPI figure for March seems cause for concern.

Taking into consideration that in March 2011 compared with March 2010, industrial producer prices gained 6.7% in the Eurozone and 7.4% in the EU27 and in February 2011 vs February 2010 the corresponding numbers were 6.6% and 7.1%, that causes concerns re the systemics related to the UK industry.

Yet the Bank of England decided to keep interest rates that a) aid growth b) keep the Pound at reasonable exchange rate (impact on exports and incoming tourism).

Food for thought: Compare and contrast BoE and ECB policy/decisions/philosophy.

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Nick

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