The power of words…

Some say that “words have meaning and names have power”. Well when Mervyn King speaks, markets listen. And sell the pound too.

On Wednesday the Bank of England Quarterly Inflation Forecast was quite dovish in its inflation forecasts, despite forecasting an improving outlook for growth.

The Bank forecasts for consumer price inflation based on current market interest-rate expectations and no further quantitative easing showed inflation at about 1.6 per cent in two years, below its 2 per cent target; whilst seeing the level of output returning to pre-crisis levels by early 2011.

If true, this implies that UK interest rates would remain low for longer than the markets had previously thought (before the release of the report the markets were predicting rate rises of about 1.5 percentage points next year).

Thus the news sent yields on sterling interest rate futures and the currency lower.

Its a great example of how the financial markets are so liquid (at times!) and react to new information as it becomes available. But given the uncertainty in the economy at the moment, where central bankers and politicians comments are being scrutinised particularly stringently, I wouldn’t be surprised by a sudden change of direction.

Unit 2 Macro: Signs of Progress for Zimbabwe [29 Jan 2012]
Unit 2 Macro: Focus on China - Inflation [26 Jan 2012]
Unit 4 Macro: Focus on India - World’s Cheapest Computer [26 Jan 2012]
Inflation - what’s up, what’s down and what’s going to happen next [17 Jan 2012]
Unit 4 Macro: UK Bond Yields Reach Record Lows [11 Jan 2012]
Unit 2 Macro: Factors Driving Business Investment [10 Jan 2012]
Hopes and Fears 2012 [10 Jan 2012]
Unit 2 Macro: Quantitative Easing in the UK [8 Jan 2012]
Rising prices and falling real incomes [13 Dec 2011]
Beyond the Bike - What is the value of life in Africa? [19 Nov 2011]
Beyond the Bike - The Value of Money [19 Nov 2011]
Pasty Prices - Something to Chew Over [19 Nov 2011]
Unit 3 Micro: Time of Use Pricing for Energy [2 Nov 2011]
Australia lowers interest rate to 4.5% [1 Nov 2011]
Unit 3 Micro: Economies of Scale and the Kinect [31 Oct 2011]
Unit 1 Micro: Google Maps to Charge for Usage [31 Oct 2011]
Unit 3 Micro: Price Discrimination in the E-Book Market [31 Oct 2011]
Unit 1 Micro: Is the Sun Dipping on Solar Subsidies? [27 Oct 2011]
Unit 1 Micro: University fees and elasticity of demand [24 Oct 2011]
Unit 1 Micro: Economists attack food price speculation [24 Oct 2011]
Unit 3 Micro: Tesco Behaving Badly - Price Anchoring [17 Oct 2011]
Can the “invisible hand” solve Africa’s poverty? [13 Oct 2011]
Unit 4 Macro: Unit Labour Costs and Inflation [12 Oct 2011]
Unit 4 Macro: UK Inflation Charts [12 Oct 2011]
Why Is Macroeconomics Such A Mess? [11 Oct 2011]
University Challenged [11 Oct 2011]
Unit 2 Macro: Homework Assignment on Consumer Spending [3 Oct 2011]
Unit 1 Micro: Homework Assignment on Market Prices [2 Oct 2011]
Unit 1 Micro: The Supply and Demand Rap! [28 Sep 2011]
Unit 1 Micro: Exercise on Equilibrium Market Prices [27 Sep 2011]
Putting the “discrimination” into price discrimination! [26 Sep 2011]
Unit 1 Micro: Exercise on Market Supply [26 Sep 2011]
Unit 1 Micro: Exercise on Market Demand [25 Sep 2011]
Unit 4 Macro: IMF Flags up Risks of Double Dip [20 Sep 2011]
Inflation in India [18 Sep 2011]
Unit 2 Macro: Interest Rates and Income Inequality [16 Sep 2011]
Study Note - Macroeconomic policy objectives [16 Sep 2011]
Unit 2 Macro: Value Added in Production and GDP [11 Sep 2011]
John Kay on the future of Economics [26 Aug 2011]
Unit 4 Macro: Baltic Dry Index and Global Weakening [19 Aug 2011]
Unit 1 Micro: The Price of Football [2 Aug 2011]
Monetary Policy Roundtable [25 Jul 2011]
Unit 4 Macro: Dangers of High Inflation [11 Jul 2011]
A2 Macro: Consumer Spending [30 May 2011]
Macro Revision: Putting Things in Context [25 May 2011]
AS Macro Key Term: Supply-Side Policies [25 May 2011]
AQA Macro: Remember to revise inflation [25 May 2011]
AS Macro Key Term: Demand Pull Inflation [24 May 2011]
AS Macro Key Term: Deflation [24 May 2011]
AS Macro Key Term: Cost Push Inflation [24 May 2011]
AS Macro Key Term: Inflation [24 May 2011]
AS Macro Key Term: The Output Gap [23 May 2011]
Revision notes on unemployment [22 May 2011]
A2 Micro: Price Discrimination [19 May 2011]
A2 Micro:  Monopsony Power in Markets [19 May 2011]
A2 Micro: The Importance of Profit [19 May 2011]
A2 Micro: Minimum Efficient Scale [18 May 2011]
UK Economy Update: What Mervyn Said [11 May 2011]
AS Micro: What´s really behind the oil price rise? [10 May 2011]
Interest Rates Held at 0.5% once again [5 May 2011]
Macroeconomics revision - measuring Consumer Confidence [4 May 2011]
AS Micro: Rising Global Food Prices [2 May 2011]
Video Clips on the Chinese Economy [1 May 2011]
AS and A2 Macro Revision: Keynesian Economics [28 Apr 2011]
AS Micro Revision: Public and Private Goods [21 Apr 2011]
UK Economy at a Glance April 2011 [17 Apr 2011]
Key AS Micro Terms: Costs and Profits [16 Apr 2011]
Key AS Micro Terms: Prices [15 Apr 2011]
China set to become exporter of inflation [14 Apr 2011]
A2 Macro: Back to Roubini - a Year On! [11 Apr 2011]
AS Macro Key Term: Real Disposable Income [11 Apr 2011]
AS Macro Key Term: Monetary Policy Tightening [11 Apr 2011]
UK Minimum Wage rises by 2.5% in October 2011 [8 Apr 2011]
ECB breaks rank and raises interest rates [7 Apr 2011]
AS Macro Key Term: Fiscal Austerity [6 Apr 2011]
AS Macro Key Term: Aggregate Supply Shock [6 Apr 2011]
AS Macro Key Term: Inflationary Pressure [5 Apr 2011]
AS Macro Key Term: Expansionary Monetary Policy [4 Apr 2011]
Information Failures: Tesco and Second Hand Cars [3 Apr 2011]
AS Macro Key Term: Relative deflation [2 Apr 2011]
AS Micro Revision: Banana Prices [1 Apr 2011]
OCR F585 June 2011: Data Charts [30 Mar 2011]
Pacific Peso Reaches 29 Year High! [30 Mar 2011]
UK Economy: Nominal and Real Interest Rates [20 Mar 2011]
Keeping Track of UK Macro Objectives [18 Mar 2011]
Timetric: Currency movements against the Euro [16 Mar 2011]
Focus on Spain [16 Mar 2011]
Timetric: Mortgage Lending and Mortgage Rates [14 Mar 2011]
EU Economics: How far is the Eurozone away from being an OCA? [12 Mar 2011]
AS Macro Revision: Investment Spending [12 Mar 2011]
the latest data from the MPC [8 Mar 2011]
Information Failure: The UK Illicit Drug Market [28 Feb 2011]
Worst Cases of Hyperinflation [16 Feb 2011]
Combining monetary and fiscal policy to curb inflation in China [16 Feb 2011]
Inflation Stats - Look no Further! [14 Feb 2011]
AS Macro: What next for the pound? [14 Feb 2011]
The 25 Countries Whose Governments Could Get Crushed By Food Price Inflation [5 Feb 2011]
Ways to watch movies - cross elasticity of demand in action! [3 Feb 2011]
EU Economics: Hopes for a low carbon future in Europe [3 Feb 2011]
Martin Weale argues for higher interest rates now! [1 Feb 2011]

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