An Increase In UK Foreign Currency Reserves

A recent press notice concerning official holdings of international reserves from HM Treasury and the ONS shows that in December 2010 the UK Government's net foreign currency reserves stood at $38,366m, up $976m. Gross reserves were up $2,836m to $78,801m. The Bank of England's net level of reserves were up $18m to $2m and the gross level of holdings was up $2,890m to $27,500m.

There were no intervention operations in December 2010 to support sterling by the Government of by the Bank of England to support their monetary policy objectives.

OECD Economic Outlook Is Uneven Growth

The May OECD Economic Outlook says growth is gradually increasing in the OECD area but at different rates across different regions, especially in emerging-market economies. Risks in global recovery may even greater now. The upturn is in large part due to keeping markets open, pulling the economy out of recession.

The emerging economies are experiencing a re-opening of imbalances. China, however, is an example of strong domestic demand preventing a large external surplus rising to pre-crisis levels. Appropriate policies are still required to address global inequalities. The G20 is given as being potentially important in identifying and implementing a set of policies for more sustained and balanced growth. International collaboration will also be required for progress in financial market reform.

Even though growth has been taking place, unemployment has increased by over 16 million in the OECD area over the last two years but it is less than expected. Employment growth prospects in some European economies and Japan are weak. A jobs recovery could take place with appropriate cost-effective labour market and social policies that support workers in danger of long-term unemployment.

Instability in sovereign debt markets and overheating in emerging market economies are significant risks that may jeopardise the recovery. Monetary policy should be returned to normal as soon as possible and support removed. Exit strategies must take account of fiscal consolidation so as not to put pressure on interest rates. Much of the turbulence has been calmed by the response of euro-area governments and the European Cenral Bank though underlying weaknesses remain and structural adjustments will have to be made.

Euro area architecture will have to be strengthened considerably to get rid of doubts about the viability of monetary union raised by the sovereign debt crisis. Domestic policies should be strengthened for more competitiveness but fiscal discipline is also important. Spending cuts must preserve the cost-effectiveness of programmes helpful to growth. Consolidation strategies must include structural reforms for growth.

Reforms of labour and product markets should be implemented for an increase in output, innovation and to prevent increases in unemployment.

Bank Maintains Interest Rates At 0.5%

The Bank of England's Monetary Policy Committee decided at their meeting on 7 May 2009 that the bank rate will stay at 0.5% on commercial bank reserves. The MPC also decided to increase the size of its asset purchase programme by £50 billion to £125 billion. The world economy remains in deep recession, global output has contracted and international trade has fallen. The increase in private saving, the restructuring of balance sheets by banks and weaker global demand will continue to hold back economic activity. Another factor acting in the other direction is the stimulus given by governments around the world to improve the availability of credit by easing in monetary and fiscal policies. It was decided that as the stimulus is expected to eventually lead to a recovery in economic growth and inflation to return to the 2% target, the interest rate should remain at 0.5% and also to continue with the programme of asset purchases financed by the issuance of central bank reserves and increase its size to £125 billion.