Wednesday , 27 September 2023

Europe & England Monetary Policy

The Bank of England monetary policy committee establishes monetary policy to meet the inflation target at 2%, and in a way that helps maintain growth and employment. At his meeting which ended on February 2, 2022, MPC chose with the majority of 5-4 to raise bank interest rates by 0.25 percentage points, to 0.5%.

The committee chose unanimously for the Bank of England to start reducing the stock of the purchase of British government bonds, which was funded by the issuance of the central bank’s reserve, by stopping reinvesting mature assets . The Committee also voted unanimously for the Bank of England to start reducing the stock purchase of corporate bonds in non-financial investment, which was funded by the issuance of the central bank’s reserve. The projection is conditioned on the implied path of the market for bank interest rates which rose to around 1½% in mid-2023

Recognizing that there will be times of inflation will deviate from the target as a result of shocks and interference. In an unprecedented situation, the economy has experienced a very large and recurring shock. In particular, if the recent movement is proven continuous, the sharp increase in global energy prices and traded goods where Britain is its net importer, of course it will burden the real aggregate income and expenditure.

The appearance of the Omicron variant is expected to slightly depress activity in December and January. But the economic impact is likely to be limited in short duration, and UK GDP is expected to recover in February and March allowing output to return to pre-pandemic levels once again by the end of the first quarter. The Labor Force Survey unemployment rate fell to 4.1% in the three months to November, and is expected to fall further in the near term, to 3.8% in Q1 2022.

Kaley Crossthwaite, partner at BDO accountants, said “The ongoing uncertainty around Omicron is dealing a further blow to UK businesses that have been battling a string of supply chain issues, the threat of further Covid curbs, and inflationary pressures last year.” Brexit and the global Covid-19 pandemic had a devastating effect on the mentality of many businesses, traumatized by ongoing delays and disruptions to their supply chains. The warning comes as other research shows the UK economy lost steam late last year as the Omicron variant hit demand for goods and services. Coupled with the increasing appeal of the initial resignation of the Minister of Boris Jhonson for a violation of the meeting at a party at the Downing Street Park during Covid 19 pandemic, plus more with the action of disbursement from members of the British conservative management, making political conditions that heat up in the Parliament and British government. This creates political uncertainty in the UK.

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Judging from several political and economic conditions as well as the high level of omicron, the movement of the sterling currency is under pressure for some time to come until Q1 2022.

Meanwhile, The euro’s economy continues to recover and the labor market is getting better, assisted by many policy support. But the growth is likely to remain weak in the first quarter, because the wave of pandemic still burdens economic activities. Lack of materials, equipment, and labor continue to hold output in several industries. High energy costs are detrimental to income and tend to reduce expenses. However, the economy is increasingly affected by every wave of pandemic and the factors that hold back production and consumption will gradually subside, enabling the economy to rise again strongly throughout the year.

In the first quarter of 2022, the regulatory board purchased clean assets under PEPP at a lower speed than in the previous quarter. This will stop the purchase of clean assets based on PEPP at the end of March 2022.

The pandemic has shown that, under stressful conditions, flexibility in the design and execution of asset purchases has helped to overcome the disruption of monetary policy transmission and made the Governing Council’s efforts to achieve its objectives more effective.

The interest rate on the main refinancing operation and the interest rate on the marginal loan facility and time deposit facility will remain unchanged at 0.00%, 0.25% and -0.50%, respectively.

Given the current uncertainty, we need more than ever to maintain the flexibility and optionality in the implementation of monetary policy. The regulatory board is ready to adjust all of its instruments, as it should, to ensure that inflation is stable at the target of two percent in the medium term.

The euro area economy continues to recover, but growth is expected to remain weak in the first quarter. While the prospect of inflation is uncertain, inflation is likely to remain a height longer than previously thought, but it decreases throughout the year. The ECB will still pay attention to enter and carefully assess the implications for the outlook for medium-term inflation.

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The eurozone company expects wages will increase 3% or more this year because workers demand compensation for inflation and it will become more difficult to find staff such as builders and software engineers, the European Central Bank said on Friday.

Wage growth is an important indicator for the ECB in assessing inflation paths in the future and setting the first time increase in interest rates in more than a decade.

Regional tensions between Russia and Ukraine have become a very worrying matter in the eurozone, with no agreement between the two sides yet, and still at an impasse. With the increasing number of troops stationed between the borders of Russia and Ukraine by Russia and NATO, the region is heating up. This results in an impermanship of the European region. Coupled with sanctions by America and Europe against Russia. Likewise Russia is one of the largest gas suppliers for Europe, making this tension can be Russian reasons to stop gas supply to Europe, which will have an impact on significant gas price increases in Europe, as happened in the early winter in Europe.

In April 2022 there will be a presidential election in France, this can be a sentiment that makes investors hold back the flow of funds to Europe, given that there are several European countries such as Hungary, Northern Ireland, Malta, Slovenia which will hold general elections in the future. However, judging by the political maneuvering of the current French president, Macron, which is more inclined to Moscow, in an effort to defuse the conflict situation between European countries and Russia.

ECB policies that are optimistic about economic developments that will improve in 2022, and the view of euro zone companies that there is a possibility of a 3% wage increase are positive sentiments for the euro area, but not in line with rising inflation that exceeds expectations, not to mention concerns about energy supply. which will be disrupted due to tensions between Ukraine and Russia, where gas supply will pose a threat to European countries, coupled with the Omicron pandemic that is still hitting several European countries and the general election that will be held by several European countries, this causes pressure on the European currency in Q1 2022 because there is a lot of uncertainty that worries about the current state of Europe.

About Reza Aswin

Senior Fundamental Analyst. 20 tahun berkecimpung di dunia trading forex, komoditi, dan hingga kini aktif menjadi analis fundamental.

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