Friday, Nov 23, 2007
Wheels coming off UK PLC!
Bloomberg: U.K. Third Quarter Economic Growth Unexpectedly Slows
U.K. economic growth unexpectedly slowed to the weakest pace in a year during the third quarter as service industries cooled and factory production stalled
Posted by tyrellcorporation @ 09:28 AM (379 views) Add Comment
3 Comments
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1. shipbuilder said...
Unexpacted by whom?
2. Antsy said...
Would that be consumers limiting their borrowing, or actually the banks limiting consumers' borrowing, ha ha
3. Aaron Mcdaid said...
"The bank's forecasts show that an interest-rate cut may be needed next year to spur economic growth as contagion from the U.S. subprime mortgage slump limits access to credit. "
i.e. " *Something* needs to be done. Cutting rates is 'something'. Let's do it. "
But this strategy is flawed.
Cutting rates will actually put commercial rates - in my very humble opinion. It should read that central banks may need to increase rates to invigorate the economy.
Below a certain level, rate cuts simply cause inflation or expectations of inflation. As such, bankers don't want to lend to businesses or people because the future repayments don't seem very valuable. Similarly, businesses don't see the point in borrowing to invest, because future yields don't seem very valuable. So inflation will push apart bids and offers and kill the economy straight away. Only short term considerations make sense any more, and whole sectors of the economy (building, research) become redundant.
To invigorate the economy, that means having lowish commercial rates (interbank rates). The only way to do that is to target inflation - an that doesn't change in a recession.
There are perfectly sound (and admirable) reasons why banks are tightening lending. If you force money in, it'll just go to gold or bonds.