Bank of England Quarterly Bulletin

2013 Q2 | Volume 53 No. 2 provides the following:

Topical articles

Macroeconomic uncertainty: what is it, how can we measure it and why does it matter?
By Abigail Haddow and Chris Hare of the Bank’s Conjunctural Assessment and Projections Division, John Hooley of the Bank’s International Finance Division and Tamarah Shakir of the Bank’s Macroprudential Strategy Division

The onset of the financial crisis in 2008 brought an end to the ‘Great Stability’ period, making prospects for UK and global economic growth appear not just weaker, but more uncertain. This elevated uncertainty is likely to have adversely affected spending decisions and contributed to the depth of the recent recession and the weakness of the recovery. While uncertainty is not directly observable, this article constructs an aggregate measure of the economic uncertainty faced by households and companies, based on a number of proxy indicators. It also provides some quantitative analysis of the impact of uncertainty on economic activity, drawing a distinction between shocks to uncertainty that are short-lived and those that are more persistent.

Do inflation expectations currently pose a risk to the economy?
By Becky Maule and Alice Pugh of the Bank’s Monetary Assessment and Strategy Division

People’s expectations about future inflation play an important role in determining the current rate of inflation. There is a risk that the recent prolonged period of above-target inflation, which the Monetary Policy Committee (MPC) judges is more likely than not to continue over much of the next two years, may cause inflation expectations to become less well anchored. By pushing up wages and prices, higher inflation expectations could lead to inflation becoming more persistent. At the moment, most indicators are consistent with inflation expectations remaining anchored to the target, although there is tentative evidence that financial market measures of inflation expectations have become a little more responsive to developments in the economy. There are currently few signs to suggest that prices and wages have increased as a result of higher inflation expectations. The MPC will continue to monitor and assess indicators closely.

Public attitudes to monetary policy
By Michael Goldby of the Bank’s Monetary Assessment and Strategy Division

This article examines the latest results from the Bank/GfK NOP survey concerning households’ awareness and understanding of monetary policy, and their satisfaction with the way the Bank is conducting monetary policy. Results from the latest surveys indicate that public awareness of the policy framework has remained broadly constant over the past year at a reasonably high level. Satisfaction with the way the Bank sets interest rates in order to control inflation remains much lower than before the financial crisis. While remaining positive over the past year, net satisfaction fell to a series low in 2012 Q3, before recovering a little in subsequent surveys. The extent of satisfaction with the Bank has moved closely with changes in consumer confidence, which in turn is linked to a range of macroeconomic variables including GDP growth, inflation and unemployment.

Cross-border bank credit and global financial stability
By Bob Hills and Glenn Hoggarth of the Bank’s International Finance Division

This article looks in detail at one aspect of global liquidity: cross-border credit provided by banks. Cross-border banking can potentially have considerable benefits, especially by diversifying the available sources of lending and borrowing, and by increasing banking competition. But such flows can also amplify risks in times of stress. As this article sets out, cross-border bank lending contributed to the build-up in vulnerabilities before the recent crisis, and exacerbated the bust once the crisis hit. The article then considers possible policy responses, arguing in particular that policymakers need to ensure that they can properly monitor these flows, from the point of view of recipient countries and the global system as a whole.

The Old Lady of Threadneedle Street
By John Keyworth, curator of the Bank’s Museum (and the Old Lady’s oldest and longest-serving employee)

The popular nickname for the Bank of England dates back to a caricature of the institution from the 1790s. An exhibition in the Bank’s Museum celebrates two centuries of visual comment, some of which is discussed in this short article. Fascinating

Central counterparties: what are they, why do they matter and how does the Bank supervise them?
By Amandeep Rehlon of the Bank’s Market Infrastructure Division and Dan Nixon of the Bank’s Media and Publications Division

The Government introduced major changes to the system of financial regulation in the United Kingdom in April 2013, including creating the Financial Policy Committee and transferring significant new supervisory responsibilities to the Bank. As part of this, the Bank is now responsible for the supervision of central counterparties, or CCPs. This article explains what CCPs are, setting out their importance for the financial system — including the benefits they bring and some of the risks they could present if not properly managed. It also summarises the Bank’s approach to supervising CCPs and describes some of the key priorities the Bank will be pursuing.

Recent economic and financial developments

Markets and operations

This article reviews developments in financial markets between the 2013 Q1 Quarterly Bulletin and 24 May 2013, drawing on the qualitative intelligence gathered by the Bank in the course of meeting its objectives of monetary and financial stability. The article also sets out usage of the Bank’s operations since the previous Bulletin.

Report

A review of the work of the London Foreign Exchange Joint Standing Committee in 2012 This article reviews the work undertaken by the London Foreign Exchange Joint Standing Committee during 2012

Summaries of speeches and working papers

• Bank of England speeches
• Summaries of recent Bank of England working papers – The Bank of England’s forecasting platform: COMPASS, MAPS, EASE and the suite of models

Full text (PDF 98pp)

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