Tuesday, February 26, 2008

The Bank of England’s deputy governor has said the outlook for the UK economy in 2008 has “changed dramatically”.

Bank warns of more economic risks

Rachel Lomax said there was uncertainty over the full impact of "the largest ever peacetime liquidity crisis". The deputy governor believes the credit crisis will significantly reduce demand over the next two years.Inflation is also forecast to rise more sharply. Ms Lomax warned this may lead to higher interest rates than expected if prices and wages rise further.

Posted by jack c @ 01:34 PM (1155 views)
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9 thoughts on “The Bank of England’s deputy governor has said the outlook for the UK economy in 2008 has “changed dramatically”.

  • “Ms Lomax admitted the economic models usually used could not help to identify the extent of the impact of the credit crisis.”

    Hang on. We’ve heard this all before.

    During the good times, everthing is plain sailing and the Bank of England, FSA and treasury claim to be in charge. Whenever the sh*t hits the fan, the Bank of England MPC Members step up to say “we don’t know what to do”. When the credit crunch started biting, we heard a similar admission from Mervyn King, claiming that they “didn’t really understand the markets”.

    Useless. Why do they think we have to pay them so much?

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  • It’s time for the Government and the MPC to start thinking about damage limitation and to admit House Prices need to come down, as painful as this may prove. Inflation must be kept under control and the Economy must move away from rising debt and find a new way to sustain growth… sermon over.

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  • stillthinking says:

    But this isn’t some off the cuff comment, this is a carefully considered comment to alter public behaviour, not some general comment on how she views the situation.
    The effect she is trying to obtain for nothing (i.e. without changing interest rates) is a reduction in borrowing.
    Therefore, although rates have gone up, the price of borrowing must still be cheap (interest rates close to inflation) and we are being scared off.
    This argument is reinforced by the many, many who say inflation is higher than officially stated, because the other side of that coin is that borrowing is too cheap.

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  • At the height of the “recession denial” phase (which was in fact yesterday) we had to listen to waffle. Now in the space of a few hours we have to listen to what amounts to opposite views that have been highlighted on this site for ages.
    Surely this is bordering on schizophrenia as people in this position would never hide the truth. Would they?
    Worrying thought !!!

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  • stillthinking says:

    In fact, I am convinced of this on thinking about it a bit, because it is disingeneous to say that we are due a spike of inflation when SHE is directly in charge of the inflation rate by controlling the price of borrowing anyway. So the “spike” of inflation is a complete falsehood. Inflation is on the way because government can’t face up to the reality that many many people have bought homes at prices they cannot afford to repay, leading us directly into economic problems as a country. So the many overstretched borrowers are being supported by an inflationary tally on the whole country.
    So to make money on this, you would need to borrow as much money as possible and buy real commodities. Then watch the value of those commodities increase faster from inflation that the costs of your borrowing -> profit.
    This seems like too little too late as well, the inflation will come too quickly to hide, interest rates will have to go up (or the pound will tank). If Labour refuse to bite the bullet, then people will leave the UK because of rises in the cost of living and also because the pound will be considered a dead duck, and the effect will spiral on and on until the full repeat of the whole saga which ended last time in the 1970s will have repeated completely, just public sector workers striking instead of miners. All of these events pushing house prices inexorably down.

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  • C'mon Correction says:

    I don’t comment here as frequently as i did; i thought about it today and it struck me – i think it’s because the news items and economic stats do all the talking, the good times on easy cheap money are over. Reality is slowing sinking in!

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  • Although I believe that the base rate should be progressively rising, had the BoE simply left rates on hold in December and subsequently this month, there would have been no run on sterling. It would still be trading on the low side at about €1.40, however one subsequent quarter point rise to 6% would have ‘normalised’ the rate to the usual €1.42 – €1.45 range.

    As it is, having created inflationary pressures, the BoE is now going to have to raise rates higher than it otherwise would have needed to do. Instead of the base rate stabilising at about 6.25% – 6.5%, it will now need to go to about 7% or above to get rid of those inflationary pressures. When the base rate rises come, maybe post-election, then property prices will fall over a cliff.

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  • I’m with you C’mon. I spend more of my time commenting on news articles on other sites such as papers etc… convincing the last of the sheeple that the inevitable has arrived. I still visit here frequently as I have done for the last 3-4 years.

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  • @C’mon Correction & geed

    I am also coming around to the same view. The blizzard of ‘bad’ news is so overwhelming that we don’t really need to make arguments any more. That said, I *still* don’t see any sign that there is much change in mood in the people around me yet. I look upon the whole thing as a sort of societal psychological experiment: when will the popular mood turn as the number of indebted people that cannot pay their debts becomes impossible to ignore? There are so many ways this could go:
    – Banks start renegotiating mortgage debts to avoid repossessions (may be relatively better than bankrupting their customers)
    – Inflation is allowed to shoot up to wipe out debts (and savers)
    – Return to tradional bank lending (parliment could do something useful here for a change)
    – Soup kitchens?
    Unfortunately, as soon as the discussion turns towards predicting the future instead of reporting on events, certain individuals with some strange ideas seem to get most of the attention.

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