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No Rate Moves By ECB Or Bank Of England

James Boston
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No Rate Moves By ECB Or Bank Of England

The two largest Central Banks in Europe have both conducted their monetary policy meetings over the past couple of days. Neither the European Central Bank (ECB) nor the Bank of England (BoE) have adjusted their base interest rates which remain at 0.15% and 0.5% respectively.

The mid summer inaction however is where the similarities end as both Central Banks continue on their disparate courses. UK interest rates are undoubtedly preparing to rise while the Eurozone equivalent is as close to rock bottom as it can get and under pressure to fall further. The ECB is navigating a path to introduce a program of quantitative easing while the BoE is establishing plans to wind theirs down. Eurozone unemployment is roughly twice that of the UK, growth forecasts for Britain far outstrip those of the Eurozone while the gap between the UK’s inflation rate and that of the Euro bloc continues to widen.

It is unsurprising then that the Euro has fallen more than 10% against the British Pound over the course of the past 12 months, if anything it is unusual that it has not fallen further. Momentum however could well take care of this, the pace of the Euro’s depreciation against Sterling over the last six months has noticeably increased and is showing no signs of slowing. The auto correction principle however should favour Eurozone trade and hamper that of the UK. The problem is that there is currently no real problem with trade out of the Eurozone countries, this is one of the few areas of the bloc that is performing in this recovery, partially due to the single currency and partially due to the global recovery in the Eurozone’s trading partners. The UK on the other hand is undergoing a largely domestic consumer led recovery, further currency appreciation here will do nothing to encourage trade but from it’s currently low base it is unlikely to further harm it either.

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