Monetary Policy Presentation

On the 24th of November, Simon Caunt, Deputy Agent for the Bank of England, came to Brampton College to deliver a presentation on Monetary Policy, and the targets the Bank of England sets for the UK economy and how they plan to achieve them.

In a fascinating talk, Simon Caunt covered a variety of topics from: purchasing Gilts, to the demand and output of the UK economy, thus emphasising the magnitude of the Bank of England and how important they are in managing the economy. He revealed to us the data the bank uses to determine the bank rate (0.5%) and inflation rate and all the other factors that need to be considered when making this decision.

The target rate for inflation is 2% (± 1%), which is measured using CPI. With the inflation rate for November 2015 being -0.1%, the Monetary Policy Committee have to write a letter to the Chancellor of the Exchequer, George Osborne, every month it is not within the target. In the letter, they must explain why they are not within the set guidelines and how they plan to amend it. As you can imagine, the committee have been writing plenty of letters recently!

Simon Caunt also outlined the Bank of England’s plans to have a positive output gap in three years and have a surplus. In the quarterly publication of the inflation report it also states the impact that it will have on real GDP. They also forecast for the next three years, as any changes in interest rates or inflation rates are planned to take effect in the next 18-24 months.

Furthermore, he also spoke about the problem of energy costs in the UK and the solution presented for early 2016. British Gas will reduce its prices by 5% so more houses will be able to afford central heating this winter, but the 5% fall in prices may not be enough for the majority, and the problem still remains, and is one that needs to be sorted imminently.

To conclude his presentation, he answered a few questions from the crowd, with the most intriguing question being whether or not the general election has an impact on the Bank of England. In his response, he stated that the biggest problem of the general election was the uncertainty of which party was going to be elected, which meant that investors were not willing to take any risks without knowing which party policies would be regimented and how it would affect any investment they made.

Pranav Sangani