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Home > News and Publications > Summary of Quarterly Bulletin 2008 Q1

Summary of Quarterly Bulletin 2008 Q1

17 March 2008


Each article is available as a separate pdf file; click on the appropriate title to access the relevant file. Alternatively you may download the complete issue (6.5mb).

Recent economic and financial developments
Markets and operations (1.5mb)
This article reviews developments in sterling financial markets since the 2007 Q4 Quarterly Bulletin up to the end of February 2008. The article also reviews the Bank's official operations during this period.

Research and analysis
Research work published by the Bank is intended to contribute to debate, and does not necessarily reflect the views of the Bank or of MPC members.

Capital inflows into EMEs since the millennium:  risks and the potential impact of a reversal (651k)
By Guillermo Felices, Glenn Hoggarth and Vasileios Madouros of the Bank's International Finance Division.
Capital inflows into emerging market economies (EMEs) were at a record level in 2007 and higher than prior to the East Asian and Russian crises a decade earlier. These inflows largely reflect improvements in EMEs' economic and financial strength in recent years. But some EMEs, especially in Central and Eastern Europe, may be vulnerable to a reversal of capital flows if the global credit squeeze is prolonged or global GDP growth falls sharply. This could adversely affect both EMEs and foreign investors.

Recent developments in portfolio insurance (2.2mb)
By Darren Pain of the Bank's Foreign Exchange Division and Jonathan Rand of the Bank's Sterling Markets Division.
The aim of this article is to describe how portfolio insurance works, the main strategies employed and how these have evolved over recent years, and the possible links between their use and financial market stability. The key benefit of portfolio insurance is that it enables financial risk to be distributed among those agents most willing to absorb it. The downside is that it can possibly create conditions for greater fragility in financial markets and leaves issuers of portfolio insurance exposed to potential unexpectedly high losses. It seems unlikely that portfolio insurance-related investments contributed significantly to the financial market volatility that began in Summer 2007. Nonetheless, it is important to keep alert to situations when portfolio insurance could potentially work to amplify financial market instability.

The Agents' scores:  a review (481k)
By Jacqueline Dwyer of the Bank's Inflation Report and Bulletin Division.
The Bank's Agents collect economic intelligence from the business community around the United Kingdom, enriching the range of information available to the Monetary Policy Committee (MPC). This intelligence is largely qualitative, and provides timely insights into economic conditions and behaviour not available from published data alone. While the greatest value from their intelligence gathering is such insight, Agents also make quantitative judgements about economic conditions in the form of a series of scores. With a decade of scores now available, this article reviews their properties and usefulness. The scores are found to be well correlated with many official data series, with correlations tending to increase through time. Some scores are also useful in predicting revisions to official data, or capturing major turning points in economic activity. Consequently, they make a valuable addition to the broad suite of information reviewed by the MPC in its policy deliberations.

The impact of low-cost economies on UK import prices (471k)
By Conall Mac Coille of the Bank's Structural Economic Analysis Division.
The share of UK imports from developing countries has increased sharply in recent years. Using measures of bilateral trade prices, this article suggests that increased sourcing from low-cost economies has put significant downward pressure on the relative price of UK goods imports. However, this effect may have dissipated over time as the prices of UK imports from low-cost economies have risen more rapidly than in the past and developing economies' increasing demand for raw materials has contributed to higher oil and commodities prices.

The Society of Business Economists' survey on MPC communications (506k)
By Tim Taylor and Iain de Weymarn of the Bank's Monetary Assessment and Strategy Division and Bronwyn Curtis, Chairman of the Society of Business Economists.
This article reports the results of the Society of Business Economists' (SBE) survey of its members' views on MPC communications. The survey found that, when forming a view about interest rate prospects, SBE members looked first at the macroeconomic data. Communications by the MPC were the next most important input. Overall, a large majority of respondents (87%) found MPC communications either 'helpful' or 'very helpful'. But there was some room for improvement. For example, the results suggested that the MPC could have done a better job of explaining how it responded to developments in the data. The enhanced coverage of risks and identification of key forthcoming data releases in recent Inflation Reports should help to address this issue. But the MPC's communication strategy continues to evolve, and the survey results will be a useful input to that process.
The survey data are available in Excel format (119k)

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