UK News

Insights from the UK and beyond

from Breakingviews:

UK banks need government to solve funding squeeze

By George Hay
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.The Bank of England is tooling itself up. The UK central bank announced on Dec. 6 a new facility to help domestic lenders if the euro zone crisis causes a fully-fledged freeze in short-term funding markets. But banks may still need more help.

The BoE already has two ways to combat liquidity squeezes. It allows banks to borrow against liquid collateral for three or six months through its Indexed Long-Term Repo (ILTR) auctions. And it allows desperate banks to swap illiquid collateral for gilts for up to a year via its Discount Window Facility (DWF) – in return for a fat fee and big haircuts.

In some senses, the new Extended Collateral Term Repo facility (ECTR) is a halfway house. It uses a similar auction structure to the ILTR but allows banks to pledge DWF-style collateral for a minimum fee of 125 basis points over the BoE’s base rate. As such it goes some way to filling the gap left by the now-defunct Special Liquidity Scheme (SLS), the crisis facility which allowed UK banks to swap illiquid mortgage-backed securities for liquid Treasury Bills for a period of up to three years.

However, the ECTR will only last for thirty days at a time. That may help avoid a collapse, but won’t provide much long-term reassurance. Contrast the BoE’s approach with the European Central Bank, which is currently being pressured to offer facilities that last for two or even three years. Even though the UK is not in the euro zone, its banks are suffering from the same long-term funding drought as their rivals on the continent. That’s worrying because, according to the BoE’s own figures, UK lenders have to roll over 140 billion pounds of term funding next year.

from James Saft:

Britain eats (leverages) its young

James Saft is a Reuters columnist. The opinions expressed are his own.

Four years, several failed banks and at least one global recession later, Britain has finally discovered what its young people need: 19-1 leverage.

Britain has announced a new housing initiative, the centerpiece of which is a plan to entice first-time buyers into buying newly-built properties with as little as 5 percent down.

from Breakingviews:

Becalmed UK in danger of double dip

By Ian Campbell
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The UK economy looks dangerously becalmed. While GDP did increase a good-looking 0.5 percent in the third quarter, the number was flattered by a catch up from a royal wedding-distracted spring. Besides, there has only been a 0.5 percent rise over the full year. And now a euro zone storm is brewing. That Tuesday's UK manufacturing survey for October dropped to the lowest level for over two years is no coincidence -- but is alarming.

from Breakingviews:

UK will get QE2 – but may need fiscal help too

The odds are moving rapidly towards a launch of QE2 in the UK. A second bout of quantitative easing - printing money - would be controversial. But a fragile economy needs extreme treatment - monetarily, and probably fiscally, too.

Britain's substantial home-grown problems are being exacerbated by crisis in the euro zone. UK unemployment crossed 2.5 million in the three months to July. Activity in services, the bulk of the economy, almost contracted in August. Wages, up just 1.7 percent in the past year, are falling fast in real terms, impoverishing consumers and threatening deflation. And exports are stalling: the euro zone is the UK's main trade partner.

from MacroScope:

BoE rate decision has echoes of Jan 2007

By Sumanta Dey in Bangalore Mervyn King

The BoE is expected to keep rates on hold at its monthly meeting today. Sixty-two out of 63 economists polled by Reuters expect such an outcome. Statistically speaking, that is more than a fair majority. But are we in for another upset like the one more than four years back? At that time, Simon Ward of Henderson Global Investors was the only economist correctly calling a rate hike.

There are a number of spooky similarities today that point to an almost identical scenario.

from MacroScope:

Broadbent’s BoE appointment keeps hawks in health

BRITAIN-BOE/Ben Broadbent’s appointment to the Monetary Policy Committee ought to dispel any notions that the Bank of England would be left short of hawks after the departure of Andrew Sentance.

A brief look at the history of Reuters polls shows that Goldman Sachs' UK economists – led by Broadbent – were uber-hawkish in their outlook for British interest rates early last year.

Britons face rising price pain

-

Fiona Shaikh is Reuters’ Economic Correspondent, based in London. –

BRITAIN/Stubbornly high inflation has proved something of an inconvenience for the Bank of England over the last year, but the unrelenting rise in prices is turning out to be a real headache for ordinary Britons — one which is likely to get worse before it gets any better.

from MacroScope:

The perils of predicting BoE policy

BRITAIN/As we’ve noted extensively, economists often get it wrong. Leaving aside their collective failure to recognise an impending global recession, you might recall a shock interest rate hike from the Bank of England in January 2007.

This was another event that almost every economist polled by Reuters failed to spot, and there are signs that four years on, economists might be setting themselves up for a similar shock.

from The Great Debate UK:

Are interest rates set to rise?

USA/Whenever he approaches a bend, an F1 driver has to make a fine judgment: brake too soon and he loses vital momentum, too late and he risks losing control altogether, with possibly fatal consequences.

For the past year, the MPC has been getting closer to the bend – the point at which it will have to raise interest rates – so, as each month passes without a touch on the brakes, the balance of risk changes as the danger of losing control of inflation increases.

from MacroScope:

How uncertain exactly is the uncertain BoE?

king-inflation.jpgFor a central bank that looks certain to bust its 2 percent inflation target for most of the time between now and the London 2012 Olympics, there is still a lot of uncertainty out there.

Bank of England Governor Mervyn King referred to "uncertain" or "uncertainty" about the outlook five times at the May quarterly Inflation Report press conference according to the bank's transcript, and the latest one didn't seem much more confident in tone.

  •