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June 22, 2006

Bank of England Minutes Confirm Wait-and-See Stance
by Victoria Marklew

The minutes of the June 8 Bank of England policy meeting, released this morning, confirmed that the members of the Monetary Policy Committee (MPC) remain in wait-and-see mode.

The MPC voted 7-1 to keep rates on hold earlier this month, with David Walton the lone hold-out hawk arguing for an immediate 25bp rate hike. While the other members did worry about inflation, they also worried about the possible impact of last month's market turmoil on growth and inflation (The FTSE-100 index of leading shares suffered its worst month in more than three years in May). The policymakers concluded that only time would tell whether this was the start of a more significant correction of financial asset prices or merely a temporary adjustment.

So far, there is nothing to imply that households were affected by the stock market slide. Data last week suggested that the March-April slowdown in the housing market may have run its course already. The British Bankers' Association reported that underlying mortgage lending rose by its biggest amount in just over two years in May, and the Royal Institution of Chartered Surveyors reported that house prices rose at their fastest pace in two years in the three months to May. Also last week came the news that World Cup-related spending boosted retail sales last month, with sales rising 0.5% on the month and 4.0% on the year.

With only one member arguing for a rate hike, the BoE minutes give the impression of a committee comfortable to keep rates unchanged through the summer months. Most of the members concluded that economic developments were unfolding broadly in line with the forecasts made in the Bank's May inflation report. The report had concluded that interest rates would rise gradually from the current 4.5% to 4.7% by mid-2007 (see May 10 comment: "Bank of England Assumes Rates Will Go Up - But Probably Not Anytime Soon").

Data to watch as we head into the summer months include May mortgage and consumer lending (June 29); the next GfK consumer confidence report (June 30); May labor market data (July 12); and June CPI (July 18). The BoE looks set to keep rates on hold at its next policy meeting, on July 6. The minutes of that meeting will be published July 19.

Victoria Marklew
The Northern Trust Company
Economic Research Department
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

Copyright © 2005-2008 The Northern Trust Company

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