| Markets and operations  (1.2mb)
This article reviews developments in sterling financial markets since the 2007 Q2 Quarterly Bulletin up to the beginning of September, which was a period of stress in international financial markets. It also reviews the Bank's official operations during this period. A fuller evaluation of the significance of financial market developments will be included in the Bank's Financial Stability Report, to be published on 25 October 2007.
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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.
Extracting a better signal from uncertain data (730k)
(By Alastair Cunningham and Christopher Jeffery of the Bank's Conjunctural Assessment and Projections Division.) Most macroeconomic data are uncertain - they are estimates rather than perfect measures. One symptom of that uncertainty is the propensity of statistical agencies to revise their estimates in light of new information or methodological advances. While revisions should move estimates closer to the 'truth', the potential for early estimates to be revised poses challenges for forecasting and economic analysis. Over the past few years, Bank staff have undertaken a range of research into how best to deal with the ensuing uncertainty. The results of that research have been used for some time as part of the toolkit available to staff when briefing the Monetary Policy Committee. This article describes some further developments in that research effort aimed at refining the staff's toolkit.
Interpreting movements in broad money (638k)
(By Stuart Berry, Richard Harrison, Ryland Thomas and Iain de Weymarn of the Bank's Monetary Analysis Division.) Understanding the role of money in the economy has always been an important issue for policymakers. And the pickup in broad money growth and decline in credit spreads over the past three years together with more recent financial market turbulence has made it a particularly pertinent issue. Monetary data can potentially provide important corroborative or incremental information about the outlook for inflation. But understanding the possible implications of money for the economic outlook requires a detailed assessment of the causes of money growth. Such an assessment must recognise the interactions between money and credit creation and the information contained in both price and quantity data. This article provides an overview of the potential channels through which money growth may affect inflation and the Bank's current empirical approach to analysing developments in monetary aggregates.
The Bank of England Credit Conditions Survey (417k)
(By Ronnie Driver of the Bank's Monetary Assessment and Strategy Division.) The Bank has for many years held regular discussions with major UK lenders and money market participants to discuss trends in credit markets. Earlier this year, the Bank began supplementing these discussions with a formal Credit Conditions Survey, similar to those already conducted by the US Federal Reserve, the Bank of Japan and the European Central Bank. The survey is intended to assess trends in the demand for, and the supply of credit, including terms and conditions. It covers both household and corporate lending markets. Although the concept of the survey predates the recent movements in financial markets, the first results of the survey, which will be published on 26 September, will provide a good opportunity to assess trends in credit conditions. This article introduces the survey.
Proposals to modify the measurement of broad money in the United Kingdom: a user consultation (521k)
(By Stephen Burgess and Norbert Janssen of the Bank's Monetary and Financial Statistics Division.) The concept of money traditionally relates to goods or assets that are generally accepted as media of exchange. In practice, there is considerable disagreement about how money should be measured. To ensure its measure of broad money remains relevant, the Bank regularly reviews the theoretical and practical basis of its definition of M4, as part of its long-term research programme. This article explains the Bank's analysis undertaken over the past year, in which a key issue has been to question whether the present boundary between the money-creating and the money-holding sectors is still appropriate. The Bank proposes to move that boundary in a few places, to address some changes that have taken place in the global financial system in recent years. In most other respects, the Bank's measure of broad money will be unaffected, as there are no compelling reasons for further modifications. The Bank welcomes readers' views on the proposals discussed in this article, by the end of December.
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