News
''US Tapering''
Last week saw most of the major developed market central banks reporting, and none of them markedly changed either policy or outlook. The European Central Bank noted that downside economic risks are currently prevailing in the Eurozone and that easy monetary conditions will persist for the foreseeable future. Again, the Council gave no indication as to how it will use monetary policy guidance in the future, preferring to take their lead from the US Federal Reserve. The European Bank lending survey yielded promising results, however, with a net percentage of banks tightening lending standards to consumers falling dramatically whilst demand for consumer credit also appears to be picking up. Corporate loan demand, however, remains subdued
Other pointers to Europe’s improving underlying economy came from the recent Purchasing Managers’ Indices (PMI), which for the manufacturing series is now at a two year high. There have been strong improvements in Germany driven by domestic demand, whereas elsewhere in the Eurozone, the improvement is export-led. The UK manufacturing PMI also jumped – led by domestic demand.
The Bank of England will explain how it intends to use monetary policy guidance in the inflation report on Wednesday, 7th August. In the US, the Federal Reserve statement was somewhat more dovish than expected, which helped markets rally. The committee noted mortgage rates have risen somewhat and that this and tighter fiscal policy are restraining economic growth. The statement also noted the committee’s willingness to defend the inflation goal in light of current low inflation readings.
