[spot5050]

The Bank of England's Monetary Policy Committee set UK interest rates.

The minutes of the meetings where they decide what interest rates should be are published each month, and this month they contained more than usual about the rising price of oil.

$this->bbcode_second_pass_quote('BoE MPC', '1')2 The main international news on the month related to the price of oil. The spot price of Brent crude oil had risen by over 10% on the month in dollar terms. The futures curve had also risen further, with the oil price out to 2008 trading at almost $60 a barrel. That compared with a figure of around $40 as recently as February, and a little under $50 at the time of the May Inflation Report.

13 The Committee discussed possible reasons for the continued rise in the oil price. On the demand side, it appeared that market participants had consistently underestimated the oil intensity of demand from industrialising countries such as China and India. On the supply side, it would take time for new capacity to come on stream. It was probable that the oil price would persist at a higher level than had seemed likely earlier in the year.

14 It was difficult to quantify the likely impact of the continued increase in the oil price on global demand growth. Standard statistical models suggested that the rise in the oil price was likely to have only a moderate dampening effect on GDP in the industrial countries. But the findings of those models, which were based on past average movements in oil prices, needed to be interpreted with care. The models were unlikely to capture fully the potential downside effects on growth of the unusually large cumulative oil price rise. Equally, there could be offsetting upside effects on global demand from the oil-producing countries, whose economies were more developed than during previous episodes of high oil prices. It could be that those countries were more likely than in the past to spend their oil receipts in the near term rather than to save them. Overall, the net downside effect of the sharp rise in the oil price on global growth could be smaller than in previous decades. Dearer oil nevertheless posed a medium-term downside risk for GDP growth and an upside risk for inflation in the industrial countries.

[jaws]

Statistical models used to predict the economy are for the most part completely worthless anyway.

[spot5050]

$this->bbcode_second_pass_quote('BoE MPC', '1')3 The Committee discussed possible reasons for the continued rise in the oil price.