Contents of Quarterly Bulletin 2012 Q2
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.
Recent economic and financial developmentsMarkets and operations
This article reviews developments in sterling financial markets, including the Bank’s official operations, between the 2012 Q1 Quarterly Bulletin and 31 May 2012. The article also describes the development of Standardised Credit Support Annexes used in
over-the-counter derivatives transactions and recent changes to intraday liquidity provision by the Bank of England in the CREST system.
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.
How has the risk to inflation from inflation expectations evolved?
By Rashmi Harimohan of the Bank’s Monetary Assessment and Strategy Division.
During 2011, the Monetary Policy Committee expressed concern that persistently
above-target outturns of CPI inflation might lead to inflation expectations becoming less well anchored by monetary policy. And in turn, that could make inflation itself more persistent via changes in price-setting or wage-setting behaviour. But inflation is now more than 2 percentage points lower than in September 2011. In light of that, this article discusses recent movements in inflation expectations and looks at a range of indicators to assess how the risk to inflation from expectations has evolved. While the upside risk has receded a little relative to the 2010–11 H1 period, so long as inflation is above target, some risk remains.
Public attitudes to monetary policy and satisfaction with the Bank (60k)
By Rashmi Harimohan of the Bank’s Monetary Assessment and Strategy Division and Rosey Jeffery of the Bank’s Public Communications and Information Division.
The past few years have been an extraordinary period for the UK economy and monetary policy. This article examines how that has affected households’ awareness and understanding of monetary policy. Results from the Bank/GfK NOP survey suggest that public awareness of the policy framework has remained broadly constant throughout the life of the survey, but that the Bank’s asset purchase programme appears to be less well understood than the setting of interest rates. Satisfaction with the way the Bank sets interest rates has fallen since the onset of the financial crisis, but remains positive. That may, in part, reflect ongoing concerns about the economic outlook.
Using changes in auction maturity sectors to help identify the impact of QE on gilt yields
By Ryan Banerjee, David Latto and Nick McLaren of the Bank’s Macro Financial Analysis Division and Sebastiano Daros of the Bank’s Sterling Markets Division.
Using the information contained in economic news and data releases, financial markets have widely anticipated recent Monetary Policy Committee announcements about the amount of assets the Bank of England intends to purchase as part of its quantitative easing (QE) policy. This makes it increasingly difficult to identify the impact of QE on gilt yields. This article uses three ‘natural experiments’ associated with operational changes to the distribution of gilt purchases — in March 2009, August 2009 and February 2012 — to help overcome this identification problem. It finds that the ‘local supply’ channel, which can be identified using these events, can explain around half of the total impact of QE on gilt yields. The estimates of this effect are broadly similar across the three events; so the strength of this channel of QE does not appear to have changed significantly since gilt purchases were introduced in early 2009.
UK labour productivity since the onset of the crisis — an international and historical perspective (167k)
By Abigail Hughes and Jumana Saleheen of the Bank’s International Economic Analysis Division.
UK labour productivity has been persistently weak since the onset of the recent financial crisis. This suggests that there is significant spare capacity within UK companies, but business surveys instead point to little spare capacity. This article aims to shed light on this puzzle by looking at cross-country and historical evidence. It finds that it has been unusual to see persistently weak labour productivity after previous financial crises in advanced economies. UK labour productivity stands out as being weak relative to historic episodes; it is also weak compared to other countries in the recent crisis. This weakness is concentrated in the energy and service sectors, suggesting the supply potential of the economy has grown more slowly than usual since the start of the crisis.
Considering the continuity of payments for customers in a bank’s recovery or resolution (54k)
By Emma Carter of the Bank’s Customer Banking Division.
The robustness of payments infrastructure, and the associated ability of payments to flow seamlessly, is an important contributor to financial stability. The United Kingdom’s payments infrastructure has historically proved to be efficient and robust. But, in a situation where a bank is in difficulty or fails, the need to ensure that customers can continue to make and receive payments may become challenging. This article draws together and discusses some of the issues in the way that UK payments and payment schemes work in stressed scenarios. It highlights some possible enhancements which could help to achieve minimal disruption to payment flows in the event that a bank gets into difficulty or fails — a subject the authorities, payment schemes and banks have been addressing in recent months. It looks at elements of recovery and resolution planning from the specific perspective of retail payments.
A review of the work of the London Foreign Exchange Joint Standing Committee in 2011 (48k)
This article reviews the work undertaken by the London Foreign Exchange Joint Standing Committee during 2011.