Decisions, Decisions - The Outlook For Interest Rates
Today, given the Bank of England to keep interest rates at 5.25% after a decline in February. Many people had expected that this decision bearing in mind that all the characters in the direction of greater period of inflation, with both input / output and prices rise, the prices of raw materials and express record levels .
The economy also seems now the time of the storm, reduce the need for the Bank to reduce prices immediately. Jan recent sales of trade as well as improvements in the productive and service manager of the establishment said that the developed economies are not in a period of suffering. Most, in the labour market has always been good. Although growth of wages has been dismissed both in the public sector as in the private sector, the number of jobs in the economy continues to grow, while the number of those entitled to unemployment benefits on the decline.
Despite a selection of “good news” stories, the outlook remains bleak, and the underlying problems are beginning to show. Accordingly, the main reason why the Bank of England not to lower interest rates, because the short-term outlook for inflation has increased, stifling the ability of banks, zuvorkommen slowdown of the British economy. Inflationären increasing pressures were as a result of the increase in energy and food. They are clearly outside the control of the bank, which are no more than the hope of a good harvest, an increase in production from OPEC and stability of the international market.
The higher prices not only reduce the ability of the Bank of England to reduce interest rates, which appears also to the consumer. With consumers, food prices increased by nearly 6% over the past 12 months, in which they have been forced to cut their spending on other items. The crisis in the banking sector, the lender has completed its margins repayment of the mortgage is still very high in spite of price reductions in interest rates as the basis for pay, which is a rise in mortgage interest rates repayment of more than 16 percent over the past 12 months. Budget budgets increasingly stretched, and with little savings for consumers, perhaps for that spending on non-essential goods on the rest of the year.
The housing market continues slowly. According to the Nation Wide Halifax and domestic price indices, prices in each of the last four months. Although not directly affect those who do not move home, those who move to May negative equity. The cabinet also many new and equity release mortgages in their homes over the past two years has helped to finance spending increases. With falling property prices, and less money to individuals, the ability to transmit on equity is increasingly difficult.
Another worrying sign is the revitalization of the difference between the Libor and the base rate. Libor shows the interest rate, banks are willing to lend. If there is a lack of credit or banks are concerned about the credit risk in financial markets, their lines of credit, which is increasingly expensive to borrow money - an increase in the Libor rate. The gap has steadily Libor had fallen since the beginning of the year, but with expectations for other losses in the banking sector, it is again increasing. This suggests that the worst is not yet over banks in the market, and it is not news to a regular loan. As a result, banks are still higher interest rates on business and consumers.
So why not reduce prices as quickly as bank of the Federal Reserve? There are two reasons for this. On the one hand, the economy of Britain is not as serious as in the United States. The American economy has a lot more losses in the real estate market and the financial sector. The economy seems to shrink and jobs are lost. The other reason is that the bank is much more to the inflation target of 2 per cent of the Federal Reserve, a broader mandate for the maintenance of economic stability and inflationary pressures.
Nevertheless, the interest rate and banking over the next year. Inflationären pressure are likely to limit interest rates in the next eight months. I would hope that it would increase 25bp two intersections between now and September. However, the economy is slowing down and prices go down, and the rapid increase in prices at the end of last year are no longer in the annual growth rate of the equation, the Bank has the flexibility to lower interest rates soon. I expect to further reduce the interest at the end of the year, perhaps even a reduction of 50bp before the start of the year 2009.
I am always positive, that the United Kingdom is not in a recession in 2008, but there will be a very difficult year for many people and things are becoming worse, before it gets better. I would not be surprised to see that unemployment starts to rise in the coming months, and the number could be also an occasion one million past, some 850000 at the moment. An increase in unemployment, wage growth is expected to remain weak, and the bonuses are particularly difficult to see healthy. Get ready for a lot of disappointment and 2008, with fewer jobs, lower wages and more stress is not in its place the most beautiful who have a job - but it is much better than jobless .