Will Negative Comments By The Bank Of England Harm The Pound?
Posted by Allison on 1 September 2009, 15:29
The title of this article assumes that this could be a future event. But in fact it appears as if it has already happened.
This news article on the Wall Street Journal website - shows the Bank of England is far from enthusiastic about the British economy at the moment. It has been doing slightly better of late, which has even triggered reactions and speculation that the worst of the recession could already be finished.
This would seem to be a bit too optimistic for most people’s tastes. There is a lot of unemployment in this country, and plenty of people are struggling to get by with lower levels of income. That alone would press them to curb their spending under normal circumstances. But with the reality of large debts finally coming home to roost, it seems foolhardy to imagine that the recession is over and things will be back to normal just like that.
So perhaps the Bank of England’s somewhat negative stance is warranted. They don’t want to give false hope and bring everyone’s hopes up if the situation does not demand such a positive reaction. But on the other side of the coin it could be said that comments that are too negative will have a negative effect on everyone in the country.
We have seen before that if bad news comes out of the UK regarding the economy, the pound takes a beating in the currency markets. You can almost watch the exchange rates going down as you tap them into your currency converter. Conversely if there is good news of some kind, the pound is more buoyant against its competition and can pick up some lost ground as a result.
It is indeed a tricky situation. The Bank of England must pore over its statement for hours on end before actually releasing it, knowing that its every word will be examined by everyone with an interest in the money markets. But it also knows that its words have a profound effect on the country and the strength of the pound too. So it must surely weigh these things up before making that all important statement.
In the circumstances it is probably right to be cautious about the improvement we have seen so far. It may not last. It may herald another period of trouble and hardship before we are out of the woods and leaving the recession behind altogether.
We know this is one of the worst recessions in history. So we should not expect it to just vanish after a few short months. It will take far longer for the crisis we have got ourselves into to resolve itself – and we must take appropriate steps to make sure that we never overextend ourselves again. That applies to individuals just as much as to the banks themselves.
So while it isn’t nice to hear such dowdy news coming out of the Bank of England, what else could they say under the circumstances? We must not be impatient. The pound will go through more tough times no doubt, before it finally gets through the recession and comes out the other side renewed. The Bank of England has to get on with its unenviable job, just as we must keep watching to see what it has to say next.