BANK OF ENGLAND Harvard Case Solution & Analysis

Bank of England Case Study Solution

Bank of England Monetary Policy:

Looking at the economic growth and the inflation of England, it seems that England has been on a healthy economic growth and have low inflation rate. The inflation rate of UK was around 2.4% for the month of April. The UK GDP growth is about 1.6%, the reason for this small GDP growth is because of the weak spending on consumption by the household. The current unemployment rate of UK seems to be decreasing to 4.7%, but the increase of payroll and wages of employees have been reducing which is also the cause of weak consumer spending and the reduction in UK’s GDP. Another reason of the rise in inflation is that the fall of UK’s currency pound which is causing the imports much more expensive.

Looking at the service sector firms of UK it seems that they are hiring more people as a reason to rising of employment in the UK.  The manufacturing industry of UK has also played a great role on the increasing of employment in the UK.

Brexit Impact

The significant impact which would cause UK’s Economy to go down in this year is because of Brexit, a term used for the United Kingdom to exit the European Union in which a vote was taken out of which 51.9% elected to vote that the UK should leave the European Union. This will have a huge impact on the imports and exports of the country among Europe which will significantly reduce the GDP of the country. The leaving of European Union has also caused the prices of energy, fuels and goods in the UK to increase in other words raise inflation. Most of the exports of Britain around 44% was done in the European countries, exiting the European Union caused them to face pressure on finding and negotiating a trade deal with the EU after the Brexit.

The purpose of Meeting:

The monetary policy committee (MPC) is a committee which works on the monetary policy of the UK held in the Bank of England. The purpose of their meeting is to work on improving the economy by using financial tools such as changes in bank rates, open market operation and federal rate. The economy of UK has been growing slowly is because of their recent action for leaving the Europe Union. This has caused an adverse impact on the economy as the prices have started increasing, resulting to increase in rate of inflation and unemployment.  The current interest rate 0.25% records as being very low and shows the signs of rising inflation.

Expectations from Monetary Policy Meeting:

It is expected that the meeting for monetary policy by the committee of Bank of England which will be held on May 11th that they plan to keep the interest rate at 0.25%. But most of the England economists argued that for solving England’s slower economic growth they might need to tighten the monetary policy by increasing the interest rate. One of the committees of Bank of England Kristin Forbes who wishes that the interest rate should be increased by 0.50%, she believes that the inflation rate will start to increase if no action is taken to tighten the monetary policy. Due to the United Kingdom exiting the European Union it is estimated that the inflation might increase to 3% of the economy. So the reason for some economist to suggest that the growth in interest rate may cause to lower the expected inflation rate.  The consumer price index inflation grew by 2.3 % in 2017 in the month of march and is further projected to increase by 2.8% throughout the year.

BANK OF ENGLAND Harvard Case Solution & Analysis

Forecast:

It is predicted that the prices of the consumer goods tend to increase in the future. There are various factors and reasons as to why these prices will rise such as the lower wages and payroll given to employees, devalue of UK’s pound currency making it expensive to import goods from another country. Most of the economists has also suggested increasing the interest rate to 0.50% from 0.25% so that the inflation could be stopped from further increasing. The CPI of inflation is currently 2.4, but it is estimated that it may increase if no action is taken.................

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