Sunday, Jan 20, 2008
UK growth will halve (at best) next year, plus Sterling is doomed
BBC: Risk of a recession 'remains low'
"We have been living well beyond our means, lured by the offers of cheap no-questions-asked credit. The reversal in the credit markets in 2007 lead to a sharp fall in economic growth, but there is room for interest rates to be cut to cushion this" Each week brings more multi-billion dollar investments that are helping many of the financial institutions that have been seriously hit by debt write-offs" These investors are Chinese, not prize i@iots, sure enough wont invest at 1.95 dollars to the pound. "Peter Spencer, chief economic adviser to the ITEM club, said the government had left it too late to sort out deteriorating public finances which could make tax cuts to spur the economy tricky to implement" Public debt will go up. All risks on the downside: GBP is doomed.
10 Comments
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1. jack c said...
"The Treasury failed to take advantage of years of good growth to put our public finances on a sounder basis, so our ability to respond by easing fiscal policy has been compromised," he said. "(Prime Minister Gordon) Brown's famous self-imposed "golden rule" was meant to stop us getting into this kind of bind but I'm afraid it will now make matters worse," he added.
Mr Brown moved the goalposts on several occasions as chancellor regarding "the golden rule" - the fact that the economy is so heavily reliant upon consumer spending which is now being dramatically reigned in surely means that the risk of a recession is high not low as per the headline.
2. symo said...
"The reversal in the credit markets in 2007 could lead to a sharp fall in economic growth, but we believe there is room for interest rates to be cut to cushion this."
Yet the article from the ITEM club says that there will be inward investment from cash rich asian/arab nations. Hmmm so they can lose money as the inflation that lowered IR's will definetely bring. Not really thought the arguements through there have they?
3. confused76 said...
symo
lowering IR has a positive effect on the nominal value of assets. but you can argue that asset prices are still inflated and that lowering IR deflates the home currency. and this should scare potential foreign buyers
4. paul said...
The BBC being used to maximum effect by Crash Gordon now.
Expect to see a lot of these articles in the coming months.
5. japanese uncle said...
Long queues of extremely worried faces in front of all NR branches were dramatically televised throughout the world not least in Japan the home of carry trade, quite like the collapse of the WTC towers in 2001. No such sweetner like this will draw attention of any potential investors, unless massive premium is offered. Then the promise of IR reduction, some premium indeed.
6. happyrenterz said...
I am still not 100% BoE will drop rates aggressively like the Fed has. BoE dropped them in December but then that was a libor problem. Unlike the Fed the BoE has to keep a watch on inflation. Most importantly one of the BoE governors said something surprsingly hawkish about inflation last week (sorry can't find reference). So I think they may just surprise us, although my expectation is that they will slash rates and the pound will suffer.
7. confused76 said...
Sterling is defined a "sitting duck" in this article by davidsmith
http://business.timesonline.co.uk/tol/business/economics/article3215588.ece
i will also make a separate post
8. jack c said...
happyrenterz - good point - Times article Friday 18th Jan 2008 - "The Bank of England's Deputy Governor dampened hopes of aggressive cuts in interest rates to bolster the economy yesterday as he highlighted its increasingly acute dilemma over a likely “sharp rise” in inflation, even as growth falters. Sir John Gieve's comments came as the quandary confronting the Bank's Monetary Policy Committee was deepened by a key survey that showed price pressures across the economy continuing to mount, despite weakening activity in both the manufacturing and services sectors"
business.timesonline.co.uk/tol/business/economics/article3207053.ece
9. happyrenterz said...
thanks for reference jack c yes that is what I had read too
10. handle_it said...
Is a possible scenario that rates are aggressively cut. The pound nose dives but they somehow manage to stave off a full blown recession.Then the only alternative is paraded as joining the Euro. At the moment there's no way Brown will even speak of it but if events are manipulated it might just be the excuse they're looking for ?