More interest rate cuts to follow
The minutes from this month's Monetary Policy Committee meeting revealed that the MPC recognised the need for a cut in rates of at least 200 bp to ensure that their long-term inflationary goals would be met.
However, they decided that a cut of this magnitude might have serious adverse effects on the value of the currency and hence distort inflation measures in the short term. They also decided to keep at least some of their powder dry so that additional easing could be introduced at later dates in order to try and improve sentiment as/if the economy worsens.
On the back of this it looks odds on that we will see a further cut at the December meeting with the market looking for a 0.50% move lower in rates. Period rates ought to continue to ease on this assumption but so far, there has been little evidence of this happening to any great degree.
Yesterday, we also had the presumed gloomy CBI Manufacturing survey and the market was not disappointed. Despite a small up-tick in the orders index, the overall report was awful with the November index of expected orders falling to a 28-year low. More ammunition for the further rate cuts brigade.
Today will bring the October data for UK Retail Sales. There is absolutely no doubt that the figures will be grim following press reports of dismal High Street conditions and pre-Xmas sales announcements from such stalwarts as Marks & Spencer, John Lewis and Debenhams.
It would not be a surprise if, even in the Xmas run in, we saw a complete standstill in consumer spending y-on-y although the expectations are for a small rise.
The Federal Reserve minutes from the last meeting were also out yesterday afternoon but followed a similar pattern to the UK version. The Board revealed a gloomy economic outlook with potential for further monetary easing. They lowered their estimates for GDP and increased their projected unemployment level, both for the end of 2009.
One thing that was mentioned in the minutes, and something that will crop up more and more in the future given the global economic situation plus the ultra low level of interest rates, is quantitative easing. This entails a government introducing measures that not only flood the market with excess liquidity but also reduce long term interest rates.
Last used in Japan during their long period of deflation (not to any great effect for a long time I add) and likely to become more popular amongst Western Governments during a prolonged grind down in economic activity.
The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.
However, they decided that a cut of this magnitude might have serious adverse effects on the value of the currency and hence distort inflation measures in the short term. They also decided to keep at least some of their powder dry so that additional easing could be introduced at later dates in order to try and improve sentiment as/if the economy worsens.
On the back of this it looks odds on that we will see a further cut at the December meeting with the market looking for a 0.50% move lower in rates. Period rates ought to continue to ease on this assumption but so far, there has been little evidence of this happening to any great degree.
Yesterday, we also had the presumed gloomy CBI Manufacturing survey and the market was not disappointed. Despite a small up-tick in the orders index, the overall report was awful with the November index of expected orders falling to a 28-year low. More ammunition for the further rate cuts brigade.
Today will bring the October data for UK Retail Sales. There is absolutely no doubt that the figures will be grim following press reports of dismal High Street conditions and pre-Xmas sales announcements from such stalwarts as Marks & Spencer, John Lewis and Debenhams.
It would not be a surprise if, even in the Xmas run in, we saw a complete standstill in consumer spending y-on-y although the expectations are for a small rise.
The Federal Reserve minutes from the last meeting were also out yesterday afternoon but followed a similar pattern to the UK version. The Board revealed a gloomy economic outlook with potential for further monetary easing. They lowered their estimates for GDP and increased their projected unemployment level, both for the end of 2009.
One thing that was mentioned in the minutes, and something that will crop up more and more in the future given the global economic situation plus the ultra low level of interest rates, is quantitative easing. This entails a government introducing measures that not only flood the market with excess liquidity but also reduce long term interest rates.
Last used in Japan during their long period of deflation (not to any great effect for a long time I add) and likely to become more popular amongst Western Governments during a prolonged grind down in economic activity.
The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.
Labels: FED, interest rates, UK interest rates, UK recession
posted by Dr Search- Principal Consultant at the Search Clinic @ 10:40 AM
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