(RTTNews) - Kate Barker, a member of the monetary policy committee of the Bank of England, discussed on Tuesday how the UK's monetary policy has been affected by recent financial turbulence. She attributed the stability to inflation targeting, stating that "In the UK, this comparative stability has prevailed since the adoption of inflation targeting." However, recent financial disruptions caused a tremor in capital markets. Despite tremendous concern in the late summer, some believe that the markets have stabilized. Barker, however, warned that further volatility should not be ruled out. "While the recent considerable volatility in many asset, money and currency markets has eased in some markets, this volatile period is not yet over," she stated. Barker cited the downward projection of many forecasters on U.S. growth. Last week, the IMF released a report calling for slower U.S. growth. However, Barker stated she does not believe that a slowdown in the U.S. economy will necessarily impact the global economy, specifically in the UK. "With regard to the US economy, many forecasters have revised down their growth projections - for example the Consensus Economics5 forecast for 2008 is now 2.4%, down 0.4 percentage points since July," she said. "But considering the scale of this revision does not enable a full judgment to be made about the impact on the global economy." A transition of credit tightening from the financial to household sectors is of chief concern for Barker. A drop off in consumer spending as related to the mortgage crisis could lead to slower global growth. "To date there is little evidence for most households of adverse effects on lending, although interest rates have risen, often quite sharply, for mortgage lending judged to be riskier," Barker stated. "While this will squeeze the finances of some of the households affected, it would not by itself be expected to have a major adverse impact on the macroeconomy." However, Barker emphasized that risk would sharpen if there was a "significant slowdown" in the housing market, though she does not expect that to happen. She attributes the increase in UK house prices to low interest rates, economic stability and growing demand that outweighed supply. She added that "the level of house prices now is, on many estimates, above a level explained by these fundamentals, and therefore somewhat vulnerable to a major change in expectations about future prices." She added that despite the financial volatility, consumer confidence didn't decrease much in September. Retail sales also remained strong, though discounting cut into profit margins.
October 23, 2007 3:15 PM