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Home > News and Publications > Summary of Quarterly Bulletin 2011 Q1
 

Summary of Quarterly Bulletin 2011 Q1

21 March 2011

Contents of Quarterly Bulletin 2011 Q1

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.

Complete issue (672k)

Recent economic and financial developments
Markets and operations (216k)
This article reviews developments in sterling financial markets, including the Bank’s official operations, between the 2010 Q4 Quarterly Bulletin and 25 February 2011. The article also summarises market intelligence on selected topical issues relating to market functioning, examining the primary market in equities for UK non-financial companies and preliminary results from the Money Market Liaison Group pilot survey of the sterling money market.
 

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.

Understanding the recent weakness in broad money growth (120k)
By Jonathan Bridges, Neil Rossiter and Ryland Thomas of the Bank’s Monetary Assessment and Strategy Division.
The growth of broad money in the UK economy has slowed dramatically since the start of the recession. In part, that weakness reflects reduced borrowing by households and companies during the recession. But money balances held by asset managers also fell as deposits were used to purchase new equity and long-term debt issued by the banking sector in response to the financial crisis. Offsetting the weakness from these two factors was the programme of asset purchases — so-called ‘quantitative easing’ or QE — conducted by the Bank of England on behalf of the Monetary Policy Committee, which boosted broad money holdings. The evidence from the monetary data suggests that the programme of asset purchases contributed to an increase in asset prices and, ultimately, an increase in nominal demand in the economy, corroborating other evidence from financial market prices.

Understanding labour force participation in the United Kingdom (83k)
By Andrew Benito of the Bank’s Structural Economic Analysis Division and Philip Bunn of the Bank’s Inflation Report and Bulletin Division.
Understanding the labour market requires an assessment of labour supply as well as labour demand. Labour supply is a significant component of the overall supply side of the economy which plays a role, alongside demand, in shaping inflationary pressure in the economy. How the economy’s supply capacity has been affected by the recession has been raised as an important issue in recent Inflation Reports. How labour force participation evolves in the medium term is likely to depend on whether recent trends in participation continue and how those trends are affected by, among other things, the recession. This article presents a disaggregated view of labour force participation in order to assess the role of these influences.

Global imbalances:  the perspective of the Bank of England (76k)
By Mervyn King, Governor, Bank of England.
In 2009, demand in the world’s major economies fell, relative to its pre-crisis trend, by around US$2.5 trillion or 5% of GDP. The financial crisis damaged virtually every country.  Global imbalances helped to fuel the financial crisis. And today they threaten the sustainability of the recovery in global demand. Global imbalances are a reflection of today’s decentralised international monetary and financial system. All the main players around the world are rationally pursuing their own self interest. But the financial crisis has revealed that what makes sense for each player individually does not always make sense in aggregate. These actions had collective consequences. The main lesson from the crisis is the need to find better ways of ensuring the right collective outcome. Improved financial regulation will help to intermediate the flows associated with global imbalances. But the global economy will remain vulnerable to the risks associated with imbalances if they are not tackled at source. Two principles should underpin the way ahead. First, discussions should focus on the underlying disagreement about the right speed of adjustment to the real pattern of spending and hence the reduction in these imbalances. This discussion should be informed by countries’ ability to follow that path in a sustainable way. Second, many policies, in addition to changes in exchange rates, will be needed to reduce imbalances. If agreement is not reached on these two principles, at best there will be a weak world recovery; at worst, the seeds of the next financial crisis will be sown.

China’s changing growth pattern (82k)
By Ed Dew and Jeremy Martin of the Bank’s International Economic Analysis Division, Julia Giese of the Bank’s Prudential Policy Division and Gabriele Zinna of the Bank’s International Finance Division.
China’s growth over the past 30 years has been remarkable. In part, that reflects a strategy pursued by many emerging market economies in the past with a focus on expanding exports. More recently, China’s current account surplus has shrunk, reflecting the collapse in world trade during the financial crisis, and the domestic stimulus China introduced in response. This article discusses China’s previous growth pattern and asks whether the nascent rebalancing will be sustained, considering implications for the rest of the world.

Report
Monetary Policy Roundtable (35k)
On 14 December 2010, the Bank of England and the Centre for Economic Policy Research hosted the fifth Monetary Policy Roundtable. These events are intended to provide a forum for economists to discuss key issues affecting the design and operation of monetary policy in the United Kingdom. As always, participants included a range of economists from private sector financial institutions, academia and public sector bodies. At this fifth Roundtable there were two discussion topics: how different will this recovery be?; and how fast can the economy grow without hitting capacity constraints?

 

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