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Home > News and Publications > Summary of Quarterly Bulletin 2011 Q4

Summary of Quarterly Bulletin 2011 Q4

19 December 2011
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 developments
This article reviews developments in sterling financial markets, including the Bank’s official operations, between the 2011 Q3 Quarterly Bulletin and 25 November 2011.  The article also summarises market intelligence on selected topical issues relating to market functioning.
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.
​By Kishore Kamath of the Bank’s Structural Economic Analysis Division and Varun Paul of the Bank’s International Economic Analysis Division.
The sterling effective exchange rate depreciated by around 25% between mid-2007 and early 2009.  That has encouraged a shift towards UK exports and away from imports, contributing to a significant narrowing in the United Kingdom’s real trade deficit.  This article explains these developments in more detail.  It shows that the depreciation has induced considerable switching of expenditure by overseas companies and households towards UK goods exports, and by UK residents away from travel services imports.  But financial services exports appear to have suffered from the financial crisis.  And there seems to have been less of a response to the exchange rate depreciation in other services exports and non-travel imports.  Looking ahead, both the level of sterling and developments in the rest of the world are likely to be crucial to the United Kingdom’s trade performance.
​By Kishore Kamath and Kate Reinold of the Bank’s Structural Economic Analysis Division, Mette Nielsen of the Bank’s Risk Assessment Division and Amar Radia of the Bank’s Monetary Assessment and Strategy Division.
Over the past year the recovery in the UK economy appears to have slowed.  That weakness in UK demand has been driven by falling consumption, reflecting the challenging environment facing households.  This article examines the factors affecting households’ budgets and spending decisions using the latest survey of households carried out for the Bank of England by NMG Consulting in September 2011.  The survey suggests that most households had experienced an income squeeze, and credit conditions remained tight.  Around half of households reported that they had been affected by, and had responded to, the fiscal consolidation.  Reported levels of financial distress had remained elevated but had been contained by the low level of Bank Rate and some forbearance by lenders.  Looking ahead, households were uncertain about future incomes and expected to continue to be influenced by the fiscal tightening.  Households in aggregate, did not expect to change the amount they saved.
​By Aashish Pattani and Giuseppe Vera of the Bank’s Macro Financial Analysis Division and James Wackett of the Bank’s Foreign Exchange Division.
Public capital markets play an important role in financing the activities of non-financial companies in the United Kingdom, providing them with the main alternative to bank loans and private sources of finance.  Although a small number of UK companies issue public bonds and equity, those that do account for a relatively large share of domestic investment and employment.  Since the start of the financial crisis in 2007, bond and equity issuance has allowed some large companies to dampen the impact of the contraction in bank lending and the worsening economic outlook on investment and hiring.  This suggests that there may be macroeconomic benefits to broadening access to public capital markets.  The Bank has helped support primary corporate bond issuance at times of impaired secondary market functioning since 2009 through its Corporate Bond Secondary Market Scheme.
​By Nick Smyth of the Bank’s Foreign Exchange Division and Anne Wetherilt of the Bank’s Payments and Infrastructure Division.
As part of a G20 commitment to improve transparency and mitigate systemic risk in derivatives markets, many OTC derivatives will be required to be traded on exchanges or electronic platforms by the end of 2012.  It is important that liquidity on the new trading platforms is resilient, both during normal and stressed market conditions.  This article discusses how liquidity is provided in different trading models and how liquidity resilience can be achieved.  The article shows that liquidity provision depends on many factors, including the willingness of dealers to provide continuous prices, their ability to manage the inventory risk arising from their role as market makers, and the ability of customers to execute large or sensitive trades with minimum price impact.  The article also suggests that conceptually, liquidity resilience can be achieved in a variety of trading models.
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