At the MPC’s November and October meetings, there was a [...]]]> The Bank of England’s Monetary Policy Committee (MPC) has kept UK interest rates on hold at 0.5%, and unveiled no new quantitative easing (QE) measures.
Both decisions were expected, but it will not be clear whether they were unanimous until the minutes of the meeting are released.

At the MPC’s November and October meetings, there was a three-way split among its nine members.

In those meetings, one member voted for a rate rise, another for more QE.

However, most MPC members continue to favour keeping rates on hold to aid the UK’s economic recovery.

This comes ahead of VAT rising to 20% from 17.5% on 1 January, and the possible negative economic impact of the government’s spending cuts.

Since June, MPC member Andrew Sentance has been voting in favour of raising interest rates from 0.5% to 0.75%.

Meanwhile, at the MPC’s meetings in October and November, Adam Posen voted in favour of £50bn of extra QE.

QE involves the Bank printing new money into the financial system in an attempt to stimulate the economy and inflation.

Recent official UK economic data showed that manufacturing output grew by 0.6% in October, the fastest pace since March with the overall UK economy growing by 0.8% between July and September.

This meant prices in the second three months of the year were 0.1% lower than [...]]]> UK house prices have fallen slightly in the early summer compared with the start of the year, a new survey has found.
Property values dropped by 0.6% in June compared with May, following a 0.5% fall the previous month, the Halifax said.

This meant prices in the second three months of the year were 0.1% lower than the first quarter.

More properties coming onto the market and less activity from house buyers has caused the fall, the lender said.

The average home in the UK is now valued at £166,203 according to Halifax figures.

The typical property was still 6.3% higher than a year ago, although the figures point to the house price recovery faltering this year.

A shortage of properties for sale in 2009 contributed to an imbalance between supply and demand and was a key factor driving up house prices last year.

An increase in the number of properties available for sale in recent months has helped to reduce the imbalance, relieving the upward pressure on prices.

The Bank of England’s Monetary Policy Committee yesterday announced that it is to keep the Bank interest rate at 0.5%.

The Bank’s Monetary Policy Committee (MPC) held the cost of borrowing at 0.5pc, and did not alter the £200 billion it has so far spent on quantitative easing- or printing money, to support [...]]]> Interest rates were kept at their record low of 0.5pc when the Bank of England announced its latest policy decision last week.

The Bank’s Monetary Policy Committee (MPC) held the cost of borrowing at 0.5pc, and did not alter the £200 billion it has so far spent on quantitative easing- or printing money, to support the economy.

Recent figures showed that the UK moved out of recession faster than originally thought in the fourth quarter of 2009.

But economists believe there could still be bumps on the road to recovery, while the General Election may also play a part in a decision to keep things as they are.

Meanwhile, the fall in February’s rate of inflation to 3pc, from 3.5pc in January, soothed concerns about pressure on the Bank for rate hikes.

The minutes of the Bank’s last meeting in March showed “different inferences” over inflation risks as some members worried that growing momentum behind recovery and a weak pound could keep it above the 2pc target for longer.

Others on the MPC were concerned that the “substantial and sustained” slack in the economy caused by a record recession could drag inflation below target.

The Bank has kept interest rates at a record low of 0.5% – despite rising inflation.

The Bank of England’s Monetary Policy Committee (MPC) agreed unanimously that interest rates should stay at 0.5% this month, minutes of the meeting show. All nine members voted [...]]]> The Bank of England has been unanimous on keeping interest rate rises on hold.

The Bank has kept interest rates at a record low of 0.5% – despite rising inflation.

The Bank of England’s Monetary Policy Committee (MPC) agreed unanimously that interest rates should stay at 0.5% this month, minutes of the meeting show.

All nine members voted for no change, even though inflation is currently at 3.5%, well above the 2% labour govt target.

However, some MPC members noted that the weakening of the pound could lead to inflation risks.

The MPC was unanimous in keeping the £200bn quantitative easing (QE) programme unchanged.

Under QE, the Bank pumped new money into the economy by buying assets, such as government bonds, in an attempt to boost lending by commercial banks.

The jump in CPI inflation to 3.5% in January was viewed as being caused by temporary factors, including the return of VAT to 17.5%.

The notes of the meeting said inflation was set to remain above the 2% target for some months to come, and that there were certain risks from the weak pound, which has now fallen in value by 25% since 2007.

However, other government bonds, such as the 10-year gilt, were under pressure following comments about stimulus measures from Andrew Sentance, who sits on the Bank’s Monetary Policy Committee.

In a newspaper interview, Mr Sentance said policymakers [...]]]> There was limited demand for the £2.25bn worth of long dated gilts sold by the Debt Management Office last week.

However, other government bonds, such as the 10-year gilt, were under pressure following comments about stimulus measures from Andrew Sentance, who sits on the Bank’s Monetary Policy Committee.

In a newspaper interview, Mr Sentance said policymakers were nearing the point where they would want to pause Quantitative Easing (QE) and wait to gauge its impact on the economy.

The central bank’s £200bn (QE) programme is due to come to an end just before the Bank of England’s policy meeting in early February.

The MPC also voted to make no change to the pace at which it is pumping cash into the economy through its quantitative easing (QE) programme — retaining the size of the programme at [...]]]> The Bank of England’s Monetary Policy Committee voted yesterday to hold interest rates at 0.5 per cent for the sixth month running.

The MPC also voted to make no change to the pace at which it is pumping cash into the economy through its quantitative easing (QE) programme — retaining the size of the programme at £175 billion.

It said that it expected the programme would take another two months to complete.

In its statement, the MPC said: “The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 per cent.

“The Committee also voted to continue with its programme of asset purchases totalling £175 billion financed by the issuance of central bank reserves.

“The Committee expects the announced programme to take another two months to complete. The scale of the programme will be kept under review.”

The move had been widely anticipated by the markets, but sterling rose slightly against the dollar and the euro on foreign exchange markets immediately after the announcement, rising by 0.7 cents to $1.659 against the greenback.

The decision follows several indications that the economy may be returning to growth after five quarters of recession — including a recovery in manufacturing output, signs of a rally in the housing market and news that activity in the services sector is expanding again.

And it comes after the shock decision, at August’s policy meeting, to expand the Bank’s programme of asset purchases from £125 billion to £175 billion — although Mervyn King, the Bank Governor, and two other MPC members, David Miles and Tim Besley, had voted to expand the programme to £200 billion.

Details of yesterday’s vote will emerge with publication of minutes of today’s meeting on September 23.

The Bank opted to hold interest rates once more at their 315-year low of 0.5 [...]]]> The Bank of England pegged interest rates today for a third month in a row and stayed its hand over any other changes in its recession fighting strategy as it paused for breath in its battle to combat Britain’s economic slump.

The Bank opted to hold interest rates once more at their 315-year low of 0.5 per cent as it weighs the impact of its expanded £125 billion drive to jump-start the economy with injections of newly created money.

The decision follows a frantic, eight-month scramble by the Bank’s Monetary Policy Committee (MPC) to shore up the economy since last October, when the global economic crisis escalated significantly.

Between last October and March, the Bank drastically cut interest rates and embarked on its aggressive moves to “print money” under a strategy of quantitative easing (QE), involving huge purchases of government and company bonds to pump extra cash through the economy.

This month’s noon “no change” verdict from the MPC follows its surprise move last month to boost the amount it plans to spend on asset purchases under its QE scheme by an extra £50 billion, and was widely predicted in the City.

It comes against a backdrop of continued uncertainty over the outlook, but growing optimism that, although the recession is continuing, the worst of the economy’s slump may be over.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

The minutes in 2-weeks time have become more important than ever with the [...]]]> Loans Calculators have sat through various BoE / MPC meeting/announcements when the Central Bank have surprised the market far more frequently on the hawkish side as it turns out but never has the market been so caught out by a UK decision.

The minutes in 2-weeks time have become more important than ever with the chance that the vote for a 150bp cut was unanimous inconceivable.

The process by which the committee came to the decision, will therefore be avidly anticipated. Last night’s evaluation of the cut and its likely effect centred solely on just how much of the cut will filter through to the economy as a whole and how much would be absorbed by Banks to enhance their capital position and their bottom line.

Government pressure must be brought to bear especially as they are a major stakeholder in most of the major institutions after nationalising them.

There was very little market reaction immediately following the news as dealers, investors and the like seemed to be at a loss as to what they should do next.

The ECB weighed in with their expected 50 basis point cut bringing its rate down to 3.25% – a 75 point cut was discussed but ultimately rejected. According to ECB President Trichet euro zone inflation was expected to continue to fall back hinting strongly that another rate cut could follow as early as next month.

Reacting to the interest cuts and an IMF report released yesterday predicting that the world’s developed economies were heading for their first full year contraction since the Second World War stock markets took fright and share values plummeted.

In New York the Dow Jones ended down 443 points or 4.85% following a decline of 5.7% in the FTSE 100. There were similar declines in Asian markets with the NIKKEI dropping 3.55%.

Turning our attention to today’s key data all eyes will be on the US non farm payroll numbers for October due for release at 1:30pm GMT. Expectations are for a decline in jobs by some 230,000 taking the unemployment rate to 6.3% from 6.1% in September.

The effects of Hurricane Ike came too late to be fully reflected in September’s figures so we could see the delayed impact of hurricane related disruption in this months figure. Not surprisingly private service sector job losses have accelerated adding to continuing reductions in manufacturing and construction jobs.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

Having said that, there is still considerable column inches being devoted to arguments for larger cuts at today’s MPC meeting with the most extreme [...]]]> But I am still of the opinion that the MPC will cut by 50bp today with a dovish set of minutes to follow and further cuts in the months to come.

Having said that, there is still considerable column inches being devoted to arguments for larger cuts at today’s MPC meeting with the most extreme view being expressed by ex-committee member Willem Buiter. In the Telegraph this morning he argues the need for a cut of 150 basis points. The majority of polls still go for a move lower by 0.50% but with the risk skewed firmly towards a larger cut. We will know at midday.

The BIG unknown is how any move from the MPC will be reflected in the LIBOR market and whether lower rates will equate to a freeing up of credit for the beleaguered UK corporate market.

The Treasury, as part of their rescue package for the UK Banking system, demanded that in return for the bail-out, the Banks concerned had to maintain their lending at 2007 levels. The Council of Mortgage Lenders (the main lobby group for Banks and Building Societies) however, seemed to give the go ahead to its members yesterday to ignore this dictat by suggesting that it would not make commercial sense to insist or even expect that lenders automatically would pass on rate cuts to their borrowers.

In this case, it would seem senseless for the MPC/BoE to use up all its ammunition in one attempt to kick start an economy still in decline. Better to temper the cuts and produce them in a more strategic manner.

There is another policy meeting taking place today and it is very important to watch the ECB Council’s decision on Euro Zone interest rates, plus M. Trichet’s comments after the decision, for signs that the ECB is truly on board with other central banks in seeking to lower interest rates. Traders and investors across the board are expecting a 0.50% rate cut today.

However, it is worth bearing in mind that the hypothesis of a 50 basis point easing did not originate in Frankfurt. It was invented by the markets. M. Trichet may not be keen to be seen to be promising the markets that the ECB will continue to cut rates willy-nilly until the world economy is fixed.

Elsewhere, the Obama factor for the Dollar ran out of steam quite suddenly as a supposed Middle Eastern Central Bank’s euro buying programme took hold. This coincided with a couple of sets of very weak figures from the US which filled the market with doom and gloom ahead of the non-farm payrolls figure on Friday.

Expectations for this number were hastily reviewed with the new estimated figure being nearer a 200,000 fall compared to the original 150,000. The short term outlook for the US economy is still grim and hence any significant Dollar appreciation will likely have to be deferred until next year when the new Administration begins to make a difference.

In the meantime, and with liquidity in markets falling away pre-Christmas and ahead of year end trading, volatility around major data releases will take over. To this end, keep an eye on the important figures coming up…. traders will most certainly be doing so.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

In the senate elections however, the Democrats have fallen short of the 60 seat filibuster-proof level that had been talked about in the run up to yesterday. Obama will now have 2 and bit months until he is [...]]]> As had been well anticipated, Senator McCain conceded the Presidential contest to Senator Obama early this morning.

In the senate elections however, the Democrats have fallen short of the 60 seat filibuster-proof level that had been talked about in the run up to yesterday. Obama will now have 2 and bit months until he is sworn in as President on 20th January during which time interest will be high in his preparations for power.

Who will form the core of his administration? How will he propose to reduce the burgeoning US deficits? What is his view on the Financial crisis and how the current administration have sought to alleviate the problem?

Added to this is the question on every US citizen’s mind, being can he pull the US economy round via an Obama feel-good factor alone or will in need a further stimulus package? And that is without any Foreign Policy considerations. Could be an interesting 10 weeks.

The US economic back-drop is not a pretty picture at present with the car market the focus …. Yesterday’s news that US auto sales plummeted by 32% in October to its lowest monthly total since January 1991 provoked increased calls for new Federal Aid for the industry.

The present sales annual rate of 10.7 million unit is way below the break-even number of 16.2 million, and still falling. Something needs to be done to revive the consumer’s confidence in the immediate future to get them back spending.

Ahead of the MPC meeting today/tomorrow we have had mixed signals from the economy, but most of them still negative.

While the mechanical effects of the big drop in energy and food prices seem likely to push the headline down below the rate of increase of the core very quickly, core CPI has been accelerating: Prices ex-food, -energy, -alcohol and –tobacco were 2.2% higher than a year ago in the latest report, almost double their yearly rate of increase in the first quarter.

This will obviously be a major discussion point for the MPC who must decide whether they are confident enough that ALL inflation risks have been contained and that price expectations are sufficiently well contained.

KPMG/REC reported the fastest falls in appointments and advertised vacancies in the history of their employment survey.The survey indicated that pay had shown the first fall in five years, with permanent pay falling to a reading of 45.7 from 50.0 in September and temporary pay falling to 47.0 from 50.4 in September.

The survey provides a very strong signal that UK unemployment is set to rise significantly in the next few months and into 2009, and earnings growth will be weak.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

Willem Buiter and Sushil Wadhwani have warned that unless the Bank reduces rates by at least a quarter percentage point it risks leaving the economy even weaker over the coming months.

However, Prof Buiter [...]]]> Two of the most respected former Monetary Policy Committee members have urged the Bank of England to cut home loans borrowing costs tomorrow.

Willem Buiter and Sushil Wadhwani have warned that unless the Bank reduces rates by at least a quarter percentage point it risks leaving the economy even weaker over the coming months.

However, Prof Buiter said he expected the Bank to leave rates unchanged, accusing it of being “wimpish”. Dr Wadhwani said that by waiting too long the Bank was in danger of returning to the “bad old days” of backward-looking monetary policy.

The double-warning intensifies the dilemma facing the nine MPC members in their two-day meeting, which begins today. The majority of City economists expect the Bank to leave rates on hold at 5.75pc, despite having indicated in last month’s Inflation Report that it is poised to cut rates by at least half a percentage point over the next year.

Since then, the credit crunch has returned to haunt the City’s money markets, pushing up the London Interbank Offered Rate to new peaks. Three-month Libor rose to just under 6.65pc yesterday, closing in on highs reached in the first wave of credit market chaos in August.

Prof Buiter, now of the London School of Economics, said: “If I was predicting 50 basis points of cuts [as the Bank did in the Inflation Report] I would have done it already. I never understood all this waiting around for better information. You make the forecast and you act. Otherwise it seems kind of wimpish.

“This financial kerfuffle has been going on since August. What are we going to learn from [waiting] another month? You don’t want to be running behind the curve.”

His concerns were echoed by Dr Wadhwani, who now runs an eponymous hedge fund.

“Our view on the committee was that you always want to be pre-emptive [with rate decisions] because you end up doing less than you would otherwise have to,” he said. “You don’t hold back and wait for the data to weaken – that’s how monetary policy was conducted in the bad old days.

“I have been surprised they haven’t cut already. I think they should really be getting on with it.”

To add to the pressure faced by the Bank, its Canadian counterpart surprised markets yesterday with a surprise cut in its borrowing rate.

All attention will now be focused on today’s services survey from the Chartered Institute of Purchasing and Supply. If it is weak, it could push the MPC into making a cut, said Prof Buiter.

He added that households and young businesses would be the main victims of the squeeze, as banks pass on higher borrowing costs to them.

“Any start-up is gong to be clobbered by this, but most existing businesses are pretty flush at the moment,” he said. “I doubt what’s going on with 3-month libor affects all businesses.

“For new businesses it will be a very rough time – as it will for households.”

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.