The member of the Monetary Policy Committee of the Bank of England, Catherine Mann, said Monday night that companies will have difficulties in increasing prices this year, since consumers are affected by the loss of jobs and spending softens , according to the Financial Times.
Key quotes
Inflation in the United Kingdom is becoming less one threat as the pricing power of companies weakens.
I can see that prices are very close to the levels consistent with the objective of [2 por ciento] In next year.
The demand conditions are much weaker than the case has been – and I have changed my mind about it.
Market reaction
At the time of publication, the GBP/USD torque drops 0.08% in the day to quote 1,2355.
BOE FAQS
The Bank of England (BOE) decides the monetary policy of the United Kingdom. Its main objective is to achieve prices stability, that is, a constant inflation rate of 2%. Your instrument to achieve this is the adjustment of basic loan rates. The BOE sets the type to which it provides commercial banks and to which banks lend themselves to each other, determining the level of interest rates in the economy in general. This also influences the value of sterling pound (GBP).
When inflation exceeds the objective of the Bank of England, it responds by raising interest rates, which makes access to credit for citizens and companies more expensive. This is positive for sterling pound, since higher interest rates make the United Kingdom a more attractive place for world investors to invest their money. When inflation falls below the objective, it is a sign that economic growth is slowing down, and the Bank of England will consider the possibility of lowering interest rates to reduce credit in the hope that companies will borrow to invest in projects that generate growth, which is negative for sterling pound.
In extreme situations, the Bank of England can apply a policy called Quantitative Easing (QE). The QE is the process by which the BOE substantially increases the flow of credit in a stuck financial system. The QE is a policy of last resort when the descent of interest rates does not achieve the necessary result. The QE process implies that the Bank of England prints money to buy assets, normally state bonds or corporate bonds with AAA rating, banks and other financial institutions. Which usually translates into a weakening of the pound sterling.
The quantitative hardening (QT) is the reverse of the QE, and is applied when the economy is strengthening and inflation begins to rise. While in the QE the Bank of England (BOE) buys state and business bonds from financial institutions to encourage them to grant loans, in the QT the BOE stops buying more bonds and stops reinvesting the main one who expires of the bonds that already possesses. It is usually positive for sterling pound.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
