Bank of England

[HenryTo]

Bank of England stands pat but should hike in next month's meeting, however, as housing prices continue to roar ahead and as price increases become more sticky:

http://www.bloomberg.com/apps/news?pid=20601087&sid=auX5B3X6TSdE&refer=home

[HenryTo]

Bank of England signals that it isn't ready to cut rates yet, and that the economy needs to slow down in order for inflationary pressures to recede:

http://www.bloomberg.com/apps/news?pid=20601087&sid=acrF9jZPDRbQ&refer=home

[rffrydr]

As feared, crude has put Europe "back to pat"

http://www.forbes.com/topstories/home/2008/03/06/england-ecb-rates-markets-equity-cx_vr_0306markets12.html

Ultimately crude prices will be deflationary.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Mervyn King ready to overhaul the Bank of England in the most dramatic way since the UK went off the gold standard in 1931:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/30/ccking130.xml

[HenryTo]

http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2008/04/01/cnking101.xml

[HenryTo]

Paul Tucker - right hand man of King on the financial markets - commenting on asset prices and urging banks to buy mortgage securities:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/03/cnbank103.xml

The Bank of England meets next on April 9th and 10th - and if the mortgage securities market don't "unclog" by then, we should see a 25 bps rate cut from the Bank of England as well as some sort of scheme (the "nuclear option") to buy some of these securities straight up.

[rffrydr]

Needs banks to buy mortgages because UK has no direct ties to market--the one we're relying on 90% of our financings here.

The effects:

http://www.bankofengland.co.uk/publications/other/monetary/creditconditionssurvey080403.pdf
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

The UK mortgage market is getting more stressed by the day:

http://www.bloomberg.com/apps/news?pid=20601085&sid=apDrda0CMUn8&refer=europe

[HenryTo]

A 25 bps cut - coupled with some kind of coordinated global action to resolve the logjam in the credit markets in the next couple of weeks - is still the most likely outcome at this point.

http://www.iht.com/articles/ap/2008/04/10/business/EU-FIN-ECO-Britain-Interest-Rates.php

[HenryTo]

Thomson Financial on the latest 25 bps cut by the Bank of England:
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FOCUS UK rate cut highlights increasing recession threat

By Claire Milhench

Fund managers say interest rates will need to be cut to at least 4.5 percent to ease credit conditions and spur growth.


LONDON (Thomson IM) - The 25 basis point cut in Bank of England base rates confirms the rapidly deteriorating macro-economic outlook for the UK, and indicates that a recession is becoming increasingly likely, according to fund managers.

Ted Scott, manager of the F&C UK Growth & Income Fund, said: 'This week's IMF Global Financial Stability Report and data released by the Halifax, revealing the biggest monthly fall in UK house prices since 1992, has clearly helped inject a sense of urgency into the Monetary Policy Committee's thinking,' he commented.

'The MPC, which has been carefully balancing concerns about inflation against a slowdown in growth, is clearly very worried about the economic outlook and it is also possible they know something that the rest of us do not know. Certainly the Chancellor's recent forecasts appear to have been way too optimistic.'

Scott pointed to a raft of grim recent data with house prices down 2.5 percent in March, a drying up of first-time house buyers, rising oil and food prices, and an all-time low in the sterling/euro exchange rate ahead of the summer holiday season.

'Disposable income is really being squeezed and in my view a recession is becoming increasingly likely. This is being mirrored in the exchange rate,' added Scott. 'Today's profit warning from Dixon's is yet further evidence of toughening conditions on Britain's high streets.' Electrical goods retailer DSG International released its second profit in four months today due to difficult trading conditions, which have forced it to cut prices.

Scott said that for some time he has been positioning the F&C UK Growth & Income Fund as very underweight domestic consumer-facing stocks, and will continue to do so. 'We also remain underweight domestic banks, though some exposure is necessary to harness yield.'

One bright spot is that the UK market contains a large number of stocks with significant overseas earnings, particularly in the FTSE 100 and the commodities sector. This has allowed Scott to find stocks that are relatively less exposed to the deteriorating UK economy while staying within the remit of the fund.

Axa IM's senior strategist Chris Iggo also saw the base rate cut as an indication that the MPC is worried about the downside risks to growth and the worsening of the credit crunch. But he argued that more policy action will be required as the lower base rate is not feeding through due to poor liquidity and credit conditions.

'For the outlook to improve the Bank needs to cut interest rates to at least 4.5 percent, and take steps to boost the liquidity position of the UK banking sector. Only then will the economy benefit,' he said. 'For the next few months the news on growth and the housing market is likely to worsen and the chances of the UK following the US into actual recession are likely to increase.'

Howard Archer, chief UK and European economist at Global Insight, agreed, adding that the latest survey evidence from the purchasing managers and British Chambers of Commerce points to a marked overall slowdown in service sector and manufacturing activity, while the danger of a sharp housing market correction is mounting. However, the Bank must weigh this against heightened inflation pressures.

In this environment, Global Insight expects the Bank to continue to enact gradual, but steady interest rate cuts. Archer forecasts that the next 25 basis point cut to 4.75 percent will occur in June or July. Interest rates will then fall to 4.25 percent by the end of 2008, and to 4.00 percent in the first quarter of 2009, as extended below-trend growth increasingly undermines companies' pricing power and limits wage growth.

[HenryTo]

Bank of England prepares bailout plan for UK banks, which has been a long time in coming:

http://online.wsj.com/article/SB120846857041824247.html?mod=googlenews_wsj

[rffrydr]

The huge rally in Sterling/Euro yesterday was a testament to how important this was.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Bank of England to accept credit card debts (unexpectedly) - as well as high-quality mortgages - as collateral to reliquify the British banking industry. The US$100 billion number is definitely not a trivial amount, and combined with the promise of more raising of capital to come (including an inevitable rights issue of US$10 to US$24 billion from RBS), should go a long way in bringing down LIBOR over the next couple of months at the very least:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/19/ncrisis419.xml

[HenryTo]

More from the original source, the BBC:

http://news.bbc.co.uk/2/hi/business/7355754.stm

[joe0528]

Hi Henry,

What do you think about GBP (against dollar) in the near or long term?

Thanks.

Joe