Monday, Jan 14, 2008
Here we go, the BoE just can't cut rates (hint: inflation and falling pound, the latter causing in turn more inflation)
Times: Record inflation fails to dampen rate cut hopes
factory gate inflation reaching a 16-year high during December, fuelled by rising oil and food prices. but the Times says ... but the Bank of England is still expected to cut borrowing costs. Yeah yeah yeah, so you hope, Davidsmith!
Posted by confused76 @ 12:51 PM (1938 views) Add Comment
25 Comments
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1. bystander said...
Could someone please tell me why, even without a rate cut the pound keeps dropping against the Euro? Is the Euro a fundamentally stronger currency, or is at, as I fear, just a money making game between currency traders to see how low it can go? If the latter is the case, how low could Sterling go against the Euro before these little boys get tired of their game, or before the BoE/ ECB put a stop to this kind of self gratifying, but potentially disastrous mode of gambling. There are a lot of people working abroad paid in pounds and even more with savings in the UK, who work abroad, and this is becoming hazardous. There are a lot of grumblings in Euroland that the single currency is having a very detrimental effect on some of the constituent parts, how come this is having no effect on the strength of the Euro??
2. japanese uncle said...
So just to boost the economy for the moment, let's cut off IR to encourage further borrowing to top up 1.4 trillion debt, to what level? 2.0 or even 3.0 trillion. Then are you happy, the so called learned/informed economists and critics? When shall be the end?
The answer is, if one is not prepared to suffer cold turkey, one cannot get rid of opium addiction for ever. The right thing the BoE is supposed to do is stay the IR or even increase it, to kill off junky debt culture, once and for all. The withdrawal condition will be something very severe, indeed. But this is a necessary painful process this economy must undergo to become a 'reformed decent economy'
In any event GBP will plummet (yes, regardless whether IR is reduced or not, as money invested to the vehicles of any sort in the UK will be ruthlessly withdrawn as is inevitably the case with the collapse of financial bubbles), which will hopefully help to restore the decent industrial/industrious spirit in this country, the home of the original Industrial Revolution. People will be awoke from the long bad dream of speculation-orientated lifestyle and start working as a decent citizen, yes to make fridge and TV and things. Besides the plummeting pounds will certainly enhance the attractiveness of UK, as target of direct investment (and as tourists destination), say from Japan, as it was in the late 80s and early 90s.
Though it may well be a wishful thinking, admittedly.
3. japanese uncle said...
bystander
Euro is nothing without Germany, which won't be immune from the aftermath of the collapose of the bubbles throughout Europe. Euro is not in such strong position, as same as GBP, but just used as haven from USD/GBP. It could not last long.
4. hpwatcher said...
''Could someone please tell me why, even without a rate cut the pound keeps dropping against the Euro? ''
I think there is the expectation of rate cute. BoE were very, very foolish to promise rate cuts at the end of last year. I think they will cut rates as it is now too political.
From what I understand, there is a very big rush to put money from sterling into euros.
5. geed said...
Possibly starting a new business venture this year revolving around budget traveller accommodation. I've been a little wary of late for obvious reasons but I firmly belieive the "Brit" will need its Holiday no matter what. I see a rejuvenate British tourism industry as a possibility. Airlines will soon raise rates - I recently read that fuel accounts for 40% of Ryanair's costs - There is only so much money you can take out of running an airline before it becomes unsafe!
Will the seaside resorts make a comeback? Noticed far more "walkers" in both Welsh and Scottish countrysides of late.
6. Wedgels said...
bystander said...
Could someone please tell me why, even without a rate cut the pound keeps dropping against the Euro?
It is because there is a strong likelihood of a rate cut in the UK but no sign of one by the ECB. That means the value of the pound can only drop even though - currently - it is at a higher interest rate level.
7. confused76 said...
GBP is fundamentally weak and would have tracked the dollar in 2007, was it not for the carry trade effect due to the IR differential with the dollar.
The balance of payments is deteriorating by the minute and the £1.4tn consumer debt (in terms of %GDP is BY FAR the largest in the world and in asbsolute terms is bigger than all the other Eu countries togheter) make the UK balance sheet a joke.
Add to that: incresing public spend, the longest-forward-serving lame duck PM with two more years to go, a very high inflation badly masked by the CPI joke, and you really see this is structural weakness, not just carry trade unwinding.
Euro is nothing without Germany? Not sure I agree. There is such a depth in the consumer spend potential of these nations, which still have sound balance sheets, with the exception of Italy's public debt and Spain;s property market (the only two bubbles in Europe, JU).
"how low could Sterling go against the Euro" ... drop 20% more to the Eur, I guess, and re-establish a USD/GBP of 1.70
8. Johnnyp said...
JAPANESE UNCLE LIKED YOU COMMENT VERY WELL PUT OVER
9. japanese uncle said...
confused76
What about France and othe East Europe where house prices are far beyond the FTB affordable level, not too much different from UK level?
BigMac reference indicates Euro is 60% overvalued against JPY.
10. geed said...
Plummeting pound = lots of inported inflation and home grown inflation derived from credit card binges and lots of mewing. Falling stock market, crashing house prices. What a complete f$£king mess. If Great Britain was a PLC ( which I suppose it is really), you would sack every Labour politician and BoE board memeber for sheer professional incompetence.
I bet they fiddle the CPI/RPI for December and account a lower figure as a result of the 60% off sales on the high street.
Confused, the Scandanavian property market is rather bubble shaped of late.
11. george monsoon said...
there appears to be no solution to this issue for the governent. I would suggest that we act as individuals, to preserve personal wealth.
If I was to take all my savings and put them in a "safe haven" where should I invest? I would love to see a positive return on my investment, but in reallity, if it remains static while the pound and other currencies falter, that would suffice.
Some people have told me to invest in gold. I notice that it is now above 900 dollars an ounce, but I can't help thinking that gold is far too volatile.
I am not really prepared to invest in another currency given the global climate, so what are my options?
thanks
12. bystander said...
Very good question George Monsson - I too would like a sure thing - is there such a thing nowadays? I am sorely tempted to move my savings to a Euro account, offshore, but the exchange rates may make this move detrimental if they do not drop as far as they would need to. Confused76 said a 20% further reduction against the Euro - how probable is this and when might the pound bounce back - if ever?
13. confused76 said...
"What about France and othe East Europe where house prices are far beyond the FTB affordable level, not too much different from UK level?
BigMac reference indicates Euro is 60% overvalued against JPY."
BigMac index theory is seriously rejected by data. Besides, Big Macs are made with domestically sourced ingredients, so not such a great benchmark either.
France and East Europe. True, affordability is low BUT HP inflation from 2000 to date is about half the UK AND indebtness is much lower (ie households will be solvent in a downturn). Self cert and other subprime simply do not exist elsewhere in Europe for the much stricter regulations and banking codes re mortgage lending. (try to get a mortgage in france if you do not have a stable job)
Although BTL exists in many Eu countries, the highly leveraged BTL disease of the UK is unique in the world
Scandinavian property perhaps in a bubble but the balance of payment of those countries support their currencies
14. Afrobaggie said...
George, I am in the same boat as you. At the very least a house price crash is upon us and the very worse - well I don't want to think about it - and my equity is sitting pretty across a number of high interest accounts but now fear that having my eggs in one basket (i.e. GBP) is probably a very risky strategy, so what are the options? People say buy gold, but what exactly aare we talking about? Physical gold and keeping it in my three bed semi? There is mention of platinum but is that the same?
I am interested in the thoughts of those with a little more knowledge than I...
15. hpwatcher said...
good comment from the times online:-
''Here we go, hold onto your hats folks, the destruction of Sterling has just started. And to think, it's all down to the fact that house prices are now so stupidly high BECAUSE they've been left out of the CPI measure since it's inception by Labour. If house price inflation had been checked by this simple tool, the debt fueled boom would have been curtailed and my savings wouldn't be in line for one hell of a beating over the next 12 months.
Rising house prices DO NOT make an economy!
Thanks, Gordon, BoE, etc...
Rob, Exeter, Devon''
16. confused76 said...
hpwatcher. Agreed! What is happening is very sad
but totally expected
17. geed said...
George/Bystamder
Diversify should be the easy and simple answer to the layman investor. I have a chunk of aussie cash which has made me a few 1000quid over the last few weeks (Bonza), interest rates should hit 7% there by Feb. A strong resource sector is propping up the rest of the comparitively lame economy over there. Essentially Australia is a high exporter of commodities to SE Asia so should be best placed to ride the oncoming storm, so far so good. Strange though the property market has been stubbornly resiliant in many inner city areas despite near 9% mortage rates. I would have though Canadian Dollars (Again Commodities) but they have had their run and I would expect IR's there to fall in line with the FED for 2008 bringing the Loonie down with the greenback, they have had huge imported Inflation of late from the States.
I have few European funds which have been volatile to say the least but I'm still up and some sterling cash in high(ish) yield ISA's.
I was tempted with Euro, and in hindsight I should have split my sterling a few months ago. I think I may have missed the boat although a 1:1 Pound for Euro xchange rate by the end of 2008 is not off the cards. Is Gold and Euro only for mugs now?
Again dont take my word for it, I ain't that smart, but I'm smarter enough not to own a property on this little Island. Thats the best advice I can give anyone at the moment. ;)
18. happyrenterz said...
Pound is crashing but houses are not. However, since houses are priced in pounds it means they are crashing too in relation to some external standard.
19. alan said...
I guess it depends what you are judging against....
House Prices have reduced significantly when compared to a barrel of Oil over the last 5 years (it was around $24, then). Similarly, House prices are well down compared to Platinum and Gold over the last few years.
As for the Euro, you can buy more houses for 1 Million Euros than last January. When the Euro rises to 80p (or possibly parity) then you will be able to buy even more houses for that 1 Million Euros.
Lets hope we don't get into the same league as Zimbabwe. Robert Mugabe's style of management is not something I'd ever want for the UK.
20. tyrellcorporation said...
hpwatcher... that was me LOL! :)
21. Heading_2_france said...
First post so here goes. I managed to buy a tiny flat in Paris three years ago that now seem, at last, to have been a good idea. I agree with c76 - housing market in most of EU does not compare to UK. I have a 15 year term fixed at under 4% and couldn't get more than 3.5 my salary. Starting to worry about my payments going up so trying to move as much money as poss to euros.
In terms of commodities, platinum seems a better deal in the long term because it is hugely important in the chemiscal industry and global reserves are very low.
22. hpwatcher said...
@tyrellcorporation
what a small world!
23. harold said...
Euro = new world reserve currency, £/$ worthless, over-produced, central bank 'IOU nothings'.
"Euro is nothing without Germany". This might be true, but then again, Germany is uber strong and not about to quit Europe.
24. wdbeast said...
I think the Euro will survive, and I believe we will be part of it in time for the 2012 Olympics.
The GBP has had it and Germany will rule Europe, economically.
25. bystander said...
wdbeast - think the Euro will survive, and I believe we will be part of it in time for the 2012 Olympics.
What do you think the ECB will make the exchange rate for GBP into Euro at the time of cross-over, some have said 1.40 and others 1for 1. Any thoughts?