The Bank of England usually pegs inflations, right Turi? I can see why you're surprised then. I wonder if rate cuts will do anything when there is an inherent problem with confidence in lending. When does it/did we go from a yield problem to one of irrational (or maybe rational) fear?
Pegs inflation? I'm not entireley sure of the phrase, but the BOE have a target of 2% for inflation, which is now currently running well over 4% and will undoubtedley go over the 5% mark in the next few weeks due to the recent rate decrease.
Little over 10 years ago the then Chancellor of the Exchequor Gordon Brown decided that the BOE should be run seperately to the Government. The BOE then had an independent panel to decide on in the interest rate to keep the economy in check. There was only one real stipulation - that if inflation rises over the 2% mark, the Governer of the BOE then had to address the reasons why in writing to the Prime Minister. It doesn't sound like much, but it was serious business when inflation first topped 2%.
Until the start of this credit crisis last year, not one letter had to be drafted. Rates were incredibly stable, with only a few steady increases and decreases (never more than by 0.25%) over the 10 years. My experience is that the BOE do not like moving the rates unless absolutely necessary, they like to play it steady and generally prefer a 'wait and see' attitude.
