Charlie Bean Opens Up on Bank of England Decisions and Effects on Sterling

The Deputy Governor of Bank of England, Charlie Bean stated that the business confidence in United Kingdom’s economy is still vulnerable. In such a situation, he believes that the officials should think about expanding stimulus, though its potency is currently diminished. Bean commented that by no means they have closed the door for purchasing further assets. He added that it would not be correct to say purchasing assets is a bad step at the current economic situation of the country.

Bean stated that certain section of British media is constantly portraying the British economy to be under recession and this is certainly not helping the economy in any possible way. Bean acknowledged that the economy growth will be somehow moderate till the end of this year. However, he expressed hope that the economy will attain rapid speed in 2013.

Bean incidentally is going to extend his term as the Deputy Governor for a year after Carney is going to take helms from Mervyn King as the Governor of Bank of England, in July, 2013.

During his conversation with the press reporters, Bean clearly stated that the problems in Euro zone is definitely bothering Sterling. He believes that investors are becoming more cautious because of all the problems in this region and that is indirectly affecting the UK market. However, Bean added that as British Government does not possess any sort of control on what’s happening outside the country such as Euro zone problems, oil prices or US fiscal cliff; it’s better to think how the response will be like to counter those situations.

Sterling was more or less unchanged against Euro (Currently priced at 80.73 pence per Euro) today. However, it plummeted by 0.3% against USD and is currently 1 Pound costs $1.6022. The British gilts advanced. The 10-year yields, on the other hand, experienced the biggest fall within the last 3 weeks. It dropped by 7 basis points and is currently at 1.78%.

The Central Bank of England has recently come up with the Funding for Lending Scheme (FLS) and it is expected to act as a complement to QE. It is supposed to work on the banking system of the country directly. Bean expressed his fear that if the uncertainty among investors undermines the demand, the effectiveness of FLS may get reduced.