UK News
Insights from the UK and beyond
from The Great Debate UK:
Are interest rates set to rise?
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.
Unfortunately, this is where the analogy breaks down, because no racing driver ever has to cope with conditions as foggy as do economic policymakers. On the one hand, the signals from the real economy are mixed.The preliminary estimate of fourth quarter GDP showed a 0.5 percent contraction – but these estimates are prone to revision at the best of times, and with the exceptional weather conditions at the end of the year it is hard to have much confidence on this occasion. On the other hand, the inflation danger has been ever-present and growing, and the Bank of England’s 2 percent target has been more or less junked.
Consider the market data. If we look at the index-linked bond market, we see, on the one hand, a real rate which is zero or even negative and, on the other hand, an expected inflation rate rising from about 3 percent to above 4 percent over the next 20 years, which suggests only one thing: stagflation for the foreseeable future.
from MacroScope:
How uncertain exactly is the uncertain BoE?
For 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.
from The Great Debate UK:
Rubbish rates – what is a saver to do?
-Rachel Mason is PR manager at Fair Investment Company. The opinions expressed are her own.-
The base rate is going to be stuck at 0.5 percent for years to come, according to experts, so where does that leave savers?
from MacroScope:
Slowing growth, MPC splits? That’s so 2008
Sixties nostalgia was all the rage in the late 90s, and towards the end of the last decade we looked back only 20 years or so for a massive 80s revival in electronic pop and fashion.
With the 2010s in full flow, the current vogue of choice derives from just two years ago – at least among those noted trendsetters, economists.
from MacroScope:
Rip-off Britain in effect
While most of the developed world frets about deflation, in Britain, inflation just won’t quit.
The Bank of England has been forecasting a sharp fall in consumer price inflation for about as long as Britons have hoped for a summer of uninterrupted sunshine. But at least Britons are still betting on a fair amount of rain.
BoE’s King “doesn’t do sex appeal”
Bank of England Governor Mervyn King was on good form when he addressed the Royal Society – Britain’s oldest scientific discussion club – on the vexing issue of communicating complex forecasts to the great unwashed.
Aside from his usual moan about the media’s desire to reduce the BoE’s beautiful but baffling ‘fan charts’ of inflation forecasts to one or two numbers, he made a rare and welcome admission that in past years the central bank had not done as well as it could have to flag up the risk that a financial crisis was about to happen.
from The Great Debate UK:
Can inflation be controlled by raising interest rates?
- Mark Bolsom is the Head of the UK Trading Desk at Travelex, the world’s largest non-bank FX payments specialist. The opinions expressed are his own.-
One of the Bank of England’s Monetary Policy Committee members, Andrew Sentance, was quoted this morning suggesting that the Bank of England will need to consider raising interest rates this year if a “recovering economy poses a threat to inflation.”
Too big to fail? Guerrilla central banking and the last resort
Deciding it was safe to come clean because banks are now on a more even keel and the worst of the credit crisis is behind us, the Bank of England has told the nation that at the height of the turmoil it secretly lent Royal Bank of Scotland and HBOS a colossal £62 billion, which is more than the entire British defence budget.
Both banks faced the imminent closure of high street cash machines and the curtailment of normal banking operations across the country.
from The Great Debate UK:
Bank hedges bets with QE expansion
When the Bank of England decided to expand its quantitative easing policy by 25 billion pounds to 200 billion on Thursday, it was essentially hedging its bets.
After Britain's economy shrank unexpectedly in the third quarter, and with two thirds of the City expecting an expansion to the QE programme, simply shutting off the tap of government bond purchases would risk being more of a shock than the economy could bear.
from MacroScope:
Crisis, what crisis, time again in Britain
Britain's recession, like the downturns in most other places, is being hailed as either having reachえｄ bottom or tailed off in its decline. The latest to trumpet the beginning of the end is the British Chambers of Commerce, which said business orders and sales had continued to fall in the second quarter but at a slower pace than previously.
So does this mean that the Bank of England will soon start raising interest rates from the negligible 0.5 
percent reached last year as policymakers sought to pump liquidity into a failing economy? Not according to researchers Capital Economics, which argues in a new report that market assumptions of higher rates at an early stage are misplaced. They offer three reasons:
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The Wall
