FINANCIAL MARKETS AND MONETARY POLICY

Financial Markets and Monetary Policy

Financial Markets and Monetary Policy

Introduction

The Monetary Policy Committee of the Bank of England maintains the official Bank Rate that is 0.5 % which is paid on commercial bank reserves. Besides it, the Monetary Policy Committee of the Bank of England also decided to enhance the size of the asset purchase program which is financed by the issuance of central bank reserves that is from £ 75 billion.

The reason of this is that the pace of global expansion has loosen, particularly in the UK's most important export markets. The uncertainties that are related with the indebtedness of few euro area sovereigns and banks have resulted in severe strains in the markets where bank funding is required and more generally in the financial markets; such concerns in the world economy make threats to the recovery of United Kingdom.

In the UK, the pathway of output has been impacted by the number of short term factors, but the on hand indicators put forward that the fundamental rate of growth has also restrained. The Bank of England faces a difficult situation with a weak economy and inflation too high. Gross Domestic Product (GDP) United Kingdom experienced in the second quarter expansion of 0.1 % over the previous quarter, a tenth less than expected. Monetary policy of UK is the action by which the monetary authority that is the Bank of England acts on the money supply in order to fulfill its objective of price stability. Monetary policy is the policy of the Bank of England, acting on the amount of money in circulation with the goal of price stability, full employment and real output growth in manufacturing. Carries out the monetary policy the Bank of England; it impact on macroeconomic processes that include the inflation, economic growth and rate of unemployment. Typically, the monetary policy of the Bank of England aims to achieve and maintain financial stability, primarily the strengthening of the national currency and the sustainability of balance of payments. Monetary control of the Bank of England is a set of specific activities of the Bank of England to change money in circulation, the volume of loans, interest rates and other indicators of monetary and market of loan capitals.

In August, the rate of inflation rose to 4.5 percent. The current inflation rate is first and foremost shows the raise in the standard rate of value added tax in the January and the impact of the prices of import and the higher energy. The inflation rate is to be expected to rise to 5 % in the subsequent month which is boosted by previously announced increases in the prices of utility, but the actions of the domestically engendered inflation stay contained and the inflation is to be expected to go down stridently in the coming as the influence of the factors for the short term raising the inflation downward and diminishes pressure from the unemployment and spare capacity persists.

What is the official Bank Rate and why is it ...