Thursday, January 10, 2008

Mervyn holds his nerve

Bank of England maintains bank rate at 5.5%

The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 5.5%. The minutes of the meeting will be published at 9.30am on Wednesday 23 January. The previous change in Bank Rate was a reduction of 0.25 percentage points to 5.5% on 6 December 2007.

Posted by drewster @ 11:42 AM (2017 views)
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20 thoughts on “Mervyn holds his nerve

  • Yessssssssssssssss!!!

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  • Well done Drewster, you are the winner. I have slow WiFi on a train so didnt even attempt to be the first this time!.

    This decison has less and less relevance though with Banks themselves deciding on the rate of lending to customers and in amongst themselves of late (Libor).

    Nevertheless, this mob havent dropped to the “samurai wielding, chop and slash at any cost” levels of the FED yet. Emphasis on the “yet”.

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  • That was a quick decision. They don’t usually announce until midday.

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  • Well done guys! HPC announcment almost beat the BoE itself.

    Please look at Assetz rate prediction below… it is time for the BuyToLosers to wake up and understand that these Stuart Law spinmasters talk [email protected]
    Keep on forecasting, Stuar!!! MWAUU AUUAUAHHAHH AHAHAHHAHAHHA

    http://news.assetz.co.uk/articles/3946.html
    “The talk this month between the members of the MPC committee will mainly centre on whether to drop rates this week or at the beginning of February instead. Just like last month there will again be discussion of whether to drop half a point rather than quarter of a point. Our overall expectation is that it is extremely likely rates will be dropped by another quarter of a point this month and if not this month, certainly at the beginning of February. There will be another quarter point drop by the beginning of April at the latest.
    This will take base rates back to 5% which we’ve always said was around the neutral level but with the American sub prime market problems still reverberating around the financial world we would not be surprised to see base rates going slightly below 5% and 4.5% or 4.75% are likely to be where rates level out by the end of this year.”

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  • Could it be that the MPC have seen the yet-to-be-released inflation figures?

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  • C'mon Correction says:

    Paul, most likely, inflation figure could (/should !) be touching 3%+.

    In fact I wouldn’t be surprised if analysts change their views to a hold in Feb/ Mar/ Apr and onwards. I believe the next move may still be up, possibly by the summer (unless HPC starts falling faster).

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  • tyrellcorporation says:

    Paul, I think you’ve hit the proverbial nail! They’ll have a shocking inflation figure in their hands – I reckon a jump to >2.5%. With high inflation expectations now locked into the average persons psyche the room for downward IR movements is severely curtailed.

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  • little professor says:

    I doubt that the inflation figure will jump that much – they are sure to be fudged.

    -0.25% to base rate in Feb or Merv loses his job.

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  • C'mon Correction says:

    The money markets will be watching the inflation figure very closely. A fudged figure with no or little move upwards and sterling will continue on downwards and price in a cut; inflation nearing 3% will be make it impossible to cut rates in Feb (if they did, Sterling would drop even more and confidence in it will be gone for a long time).

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  • crash bandicoot says:

    They are going to have to start “de-fudging” the CPI figure soon otherwise it will lose any of the percieved credability that it still has. Even the mainstream press are starting to ignore it in favour of RPI or “personal inflation” values. It only started its magical descent around the time of the aborted autumn election. If it isn’t allowed to move to reflect recent headline price increases soon it will add more tarnish to this governments reputation. It really surprises me that the Tories haven’t ripped this appart yet. I can only assume that the would like to keep a veneer of Whitehall neutrality for themselves.

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  • tyrellcorporation says:

    Maybe Merv thinks he’s going to go anyway and is doing the Vees to his paymasters. I also think the MPC are very worried about a falling Pound. IR cuts in the US have done nothing but devalue the dollar. They haven’t revived the housing market or helped consumer spending – Pointless IMHO.

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  • “highly probable that the Bank of England will cut interest rates to 5.25% in February as evidence mounts that the UK economy is faltering”.

    Ian Kernohan, an economist at Royal London Asset Management, said the Bank may even cut rates by half a percentage point, “depending on how bad the news is over the next few weeks”.

    The British Chambers of Commerce (BCC) said the Bank had missed an opportunity to underpin consumer confidence, and limit the damage from a global credit crunch and problems in the US mortgage market.

    “A modest interest rate cut would have alleviated the threats to the banking system and would have helped restore the smooth flow of credit in the economy,” said David Kern, economic adviser to the BCC.

    “The evidence from the past month points to a growing risk of a weaker economy and there is little reason to believe the case for a cut will be any less strong next month,” EEF Chief Economist Steve Radley said.

    The BoE’s remit is to target inflation, period. Why hasnt the mainstream press reiterated this fact. Its all about inflation and nothing to do with these self interested suits. But that is just it, we know that inflation plays a little part of it as CPI was over target last month at 2.1 % and the BoE still cut rates.

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  • The pound continues to wend its way downwards. What will stop it’s decline?? Really I’d like to know as I live abroad and my savings are becoming a massive currency loss? Help.

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  • I am a little confused. Why is the eurozone not being penalised for sub-prime debt, as we know it has its fair share – why is sterling getting shafted? Is there a possibility that sterling could go the same way as the USD and be worth less than one euro in the near future? If so should I be getting my savings into Euros as soon as possible? HELP!HELP!HELP!

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  • Geed: Thank you 🙂 And yes you’re right that it is less relevant, but it does appear to have massive psychological importance.

    Paul, Confused76: I suspect the time on the web server is set incorrectly. Every time I post a new article it appears to be 20 minutes earlier than it really was. The decision was announced at midday exactly, I posted at 12:02.

    LP, Geed: Yes a cut for Feb appears to be a certainty. Although the bank is supposed to target inflation, one of the main benefits of not being in the Euro is that we can devalue our currency to boost the economy. The BoE’s independence is supposed to prevent that; however it was given independence during a boom time, things look very different now. It’s a bit like giving your 16 year old daughter independence and then a year later finding the school rugby team in her bedroom…. you’d be pretty tempted to revoke that independence!

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  • Previous comment based on panic, but seriously what are the prospects for GBP and will there be a recovery, if there will be when would that be likely to happen? These record lows are really starting to worry me. If there is speculation of a cut sterling drops, if they hold then sterling drops. I do not understand. Looks like the money markets have decided on one sort of correction which will make every UK resident poorer, and its got sod all to do with housing.

    Still, would it be adviseable to get my savings into the Eurozone sooner rather than later?

    Does the Eurozone have any problems, other than subprime, that will cause it to plummet against the pound in the near future??

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  • Trichet and the money masters in the eurozone are setting their rates based on inflation, which have been reaching scorchio levels, so they have no room to cut rates. Of course, this doesn’t help eurozone manufacturers, especially with a high euro eating margins – just ask airbus. But unlike in the US, there is a safety blanket of widescale unemployment provision which means they can look after the value of money (euros), helping savers save while still keeping interest rates lower than the UK, keeping a lid on inflation and unemployment will always be looked after by socialist governments, even those slightly righter-wing socialist states like Sarkozys France. In the US, they play merry hell with the dollar, setting a rate which will likely destroy any value left in it, but increased unemployment is a dangerous situation where there is no effective welfare in place. So they set a value on the dollar to compete with cheap labour in China, importing inflation, devaluing dollars versus assets (even as those assets are devaluing vs dollars, e.g. house prices), completely eliminating any virtue in saving or a savings culture, the last gasp of consumerism. People stay in jobs by the skin of their teeth, work stupid hours, and make little headway against their debt, save that their debt in real terms, like their labour, is worth considerably less at the end of this process of stagflation. Sterling’s money masters are in thrall to the US so they will probably follow suit, but at some point our innate europeanness will make us turn in their direction, but not before the pound and the british economy have gone to hell.

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  • Time for Merv to man up and start tackling inflation and defending the pound. I say lets start a campaign for a 2% hike in BofE rates.

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  • @Bystander: You’re only partly right. Some German banks have been caught holding large amounts of US subprime debt; but they haven’t actually issued much themselves. Although there are house price bubbles in some countries (Spain and Ireland in particular), other countries are untouched (especially Germany). This is why the Euro-zone appears stronger than the USA.

    The other reason the Euro has risen is because it’s seen as free of political influence. Although the Fed and the BoE are independent, they could be taken back in by their national governments at any time. The Euro doesn’t have a single government capable of taking over control, so it is forced to be independent. This makes it a more stable currency than the others.

    As for where you should put your savings, well you must know the mantra by now: GOLD 🙂 If you don’t like gold then I suppose Euros aren’t a bad choice. Anything but the pound really.

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  • Thanks Drewster. It is reassuring to get some proper advice. I have watched the pound devalue and have asked many people, financial advisers etc for advise and they have all said leave it where it is, all will be well in the long term. I am extremely doubtful, now that their advise has been really helpful or infact correct. What are your predictions for the Euro this year – up to 0.85 to the pound or higher??

    Gold is an unknown quantity for me and although I have watched that rocket too I am an investment coward – whereas if I bring my savings into eurozone then it doesn’t feel like investing, just transfering.

    Thanks again for your advice.

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