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Essay / Research Paper Abstract
In November 2006 the Bank of England increased the base rate by 25 point (0.25%). This 7 page paper looks at whether the increase was expected by the market and considers if there were hints from the bank this would occur, why the increase took place and the way it was received by the markets. The bibliography cites 7 sources.
Page Count:
7 pages (~225 words per page)
File: TS14_TEBoEnov6.rtf
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Unformatted sample text from the term paper:
was expected and had it not occurred at this time it would have occurred in December or larger increases would have been seen in 2007. The notes from the October
2006 Monetary Policy Committee indicated that this was possible as they stated "Although the central expectation among respondents was for no change at the October policy meeting, the mean probability
of an increase had been put at 25%, with the central expectation being for interest rates of 5% by the year end. The markets appeared to be pricing in some
possibility of a further rise in 2007 Q1." (Bank of England, 2006) This was careful not to state that there would be an increase, but it is accepted
and indicating that this is a very likely event, simply by acknowledge the market expectation they are giving credence to it and reaffirming the expectation.
To look at why the increase was made the role of the Bank of England and the Monetary Policy Committee has to be briefly considered. The Bank
of England was traditionally under the control of the government. When it was national policy to use interest rates as a tool to control inflation the final decision as to
whether or not interest rates would increase was seen as residing with the government, and not the bank. Therefore the bank was in many ways merely a subsidiary department
of the government. It was only in 1997 that the Bank of England was granted the freedom to make its own decision regarding monetary policy and interest rates (Financial Times,
1998). This was later backed up by legislation the form of the Bank of England Act 1998. Therefore we can argue that the independence of the Bank of England was
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