Operation of monetary policy

• The economic and monetary data released during the second quarter provided further evidence of a steady recovery with low inflation. The April tax increases did not appear to have significant impact on the course of the recovery in the quarter.
• Although there was some increase in earnings growth and manufacturers’ input prices, current inflation remained subdued.
• International financial markets continued to be volatile; much of the disturbance in the UK gilt-edged and equity markets reflected this worldwide instability.
• Despite the difficult market conditions, sufficient sales of gilts were made to keep pace with the annual funding target. This satisfactory result was achieved by introducing at the monthly auctions a range of gilt-edged instruments designed to take account of the unstable market conditions.
• With no significant pressure on UK interest rates in either direction, the Bank maintained a broadly neutral stance in its money-market operations and kept its dealing rates unchanged throughout the period.

Operation of monetary policy