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Monetary NewsMervyn King to grimace and bear bad newsWhen the Bank of England’s Governor unveils its latest prognosis for the economy this week, he is likely to adopt his sternest demeanour. The message from Mervyn King may not be quite as bleak as Churchill’s famous admonition that he had “nothing to offer but blood, toil, tears and sweat”, but it may not be far off. The Bank’s hardline decision last week to keep interest rates on hold despite the latest spate of dreadful news over worsening economic conditions gave a foretaste of the granite-hard façade that it is set to present to the country in its latest quarterly Inflation Report on Wednesday. The “no change” verdict on interest rates from Threadneedle Street can only have appeared to much of the country at large like an exercise in monetary sado-masochism. Yet the harsh reality that confronts the Bank’s Monetary Policy Committee (MPC) is that it remains trapped between an economic rock and a hard place. Far from easing as the economic outlook has grown darker, the conflicting pressures confronting the MPC – from faltering growth and activity on the one hand and simmering inflationary pressures on the other – have intensified. The deluge of ever more dismal economic indicators now leaves little doubt that the economy is facing its most testing two-year stretch since the early Nineties. Yet as the going gets much tougher, the persistence of the inflation threat condemns the Bank to talk, and act, tough, too. The MPC’s mission to ensure that inflation hits its 2 per cent target over the medium term leaves it scant room for manoeuvre. It is forced to act only cautiously, even as the demands for more aggressive and urgent action escalate. The Bank’s dilemma seems set only to be become more acute through the summer, as the Inflation Report is likely to spell out. If anything, the MPC’s latest assessment is likely to understate the full scale of dangers to growth prospects that have emerged. At the heart of the heightened risks is the increasingly dire straits of the housing market, which appears to be locked into a vicious downward spiral triggered by the mortgage lending drought. The severe squeeze on the availability of home loans is combining with falling house prices to cause demand in the property market to dry up, with cautious buyers holding out for the much lower prices they expect in future. As demand and market activity drop, and the supply of unsold houses grows, prices fall farther and faster. In turn, that farther deters would-be buyers and makes lenders become even more cautious, fuelling an ever steeper downward slide. The scale of these trends is underlined by the Council of Mortgage Lenders’ data, highlighted by Michael Saunders, of Citigroup, which shows the drastic tightening of lending conditions since the start of the year. The number of new home loans agreed plunged by more than 30 per cent in the first quarter, compared with the same period a year earlier. In March, approvals of new mortgages fell to the lowest since 1992. Although the Bank of England’s £50 billion lifeline, designed to ease the funding pressures on lenders, may limit the squeeze, Mr King has been bluntly candid that it is far from intended as a cureall for the mortgage market. The clear peril for the economy is that the toll on sentiment and household wealth from an increasingly severe housing correction now sees the credit crunch mutate into a brutal consumer crunch as households pull back their spending. The Bank tends to play down the repercussions of falling house prices for consumer demand. Yet signs are already accumulating that the consumer may embark on a full-scale retreat from the high street. Consumer confidence has slumped to 15-year lows, while polls show that concern over the state of the economy is at its highest levels since 1993. As other signs of economic weakness pile up, it is becoming painfully clear that Britain, far from being better placed than its rivals to weather global economic squalls, as the Chancellor and Prime Minister claim, is markedly worse off. As Mr Saunders argues, the UK is left badly exposed by the highest household debt burden in the Group of Seven leading industrial economies, alongside severely inflated house prices and low household savings. The price of a protracted period of living beyond our means may now have to be paid. Long years of high spending, as well as heavy borrowing excess. are making the fallout from the credit crunch more painful and the boost from the Bank’s limited easing of interest rates less potent. Yet, worse still, the same past excesses, in the form of a swollen current account deficit, are adding to the acute pressure on a sharply weakening pound, already hit by Britain’s worsening growth outlook. Sterling’s steep slide – by about 12 per cent in the past year - is aggravating the Bank’s inflation headache by raising the nation’s import bills and further curbing its scope to cut base rates to underpin faltering growth. With the pound set to tumble still farther, oil prices having surged to record levels of above $120 a barrel and the cost of food in global markets soaring, the City expects that the Bank will raise its forecasts for inflation this week. It is likely to give warning that headline consumer price inflation will rise above 3 per cent over the summer, forcing Mr King to pen what will be only his second explanatory letter to the Chancellor. Against this background, the Governor can be expected to make it brutally plain on Wednesday that further easing of interest rates will be only limited and gradual. Ultimately, the extent of the slowdown now taking hold in the economy will quell the inflationary threat that the Bank is, for now, compelled to prioritise over risks the growth.$Read Full Article MPC split in favour of holding interest rateThe intense quandary facing the Bank of England’s Monetary Policy Committee (MPC) was emphasized today in a knife-edge vote by The Times MPC recommending that the UK interest rate should be kept on hold.Read Full Article Little hope for inflation, so no rates moveAs the Bank of England’s rate-setting Monetary Policy Committee gathers this week, its largely united front since the start of the credit crisis last autumn has given way to division. The fraying of the MPC’s consensus means that, despite bleak headlines over economic prospects, most of the City believes that the chances are slight of a back-to-back cut in interest rates on Thursday.Read Full Article The American patient gets a big dose of aidONE TEAM of ecomedics has done what it can. Ben Bernanke’s Federal Reserve Board monetary-policy gurus dropped their short-term interest rate another 0.25 percentage points last week, to 2%, and told their patient, the American economy, not to look for another shot in the arm. We might do more for a few patients, since the banks in our care seem to be suffering from a reduced ability to function normally, but that is about it.Read Full Article Memo From Frankfurt: As Euro Nears 10, Cracks Emerge in Fiscal UnionBy most yardsticks, Europe’s common currency has been a success. Yet fissures are forming in the European monetary union that threaten to widen in coming months.Read Full Article External News for: monetaryEmbattled Fed Faces Historic Audits Under House Proposal - eCreditDaily.comUnited Press InternationalEmbattled Fed Faces Historic Audits Under House ProposaleCreditDaily.comThe embattled Federal Reserve, the credit industry's chief overseer, will have its bailout programs and monetary policies audited by Congress, ...House Attacks Fed, TreasuryWall Street JournalThreatening the Fed's independenceWashington PostPanel Votes to Broaden Oversight of the FedNew York TimesNew York Times (blog) -MarketWatch -RTT Newsall 259 news articles »Embattled Fed Faces Historic Audits Under House Proposal - eCreditDaily.comUnited Press InternationalEmbattled Fed Faces Historic Audits Under House ProposaleCreditDaily.comThe embattled Federal Reserve, the credit industry's chief overseer, will have its bailout programs and monetary policies audited by Congress, ...House Attacks Fed, TreasuryWall Street JournalThreatening the Fed's independenceWashington PostPanel Votes to Broaden Oversight of the FedNew York TimesNew York Times (blog) -MarketWatch -RTT Newsall 259 news articles »IMF Says Sri Lanka Reserves at 'Comfortable' Levels - BloombergAFPIMF Says Sri Lanka Reserves at 'Comfortable' LevelsBloomberg20 (Bloomberg) -- The International Monetary Fund said Sri Lanka's foreign reserves are at a “comfortable level”, as it reviews the island's economy for the ...Sri Lanka reserves 'comfortable' after bailout: IMFAFPHigher growth in 2010Ceylon Daily NewsIMF, Ukraine Still Looking For Agreement On 2010 BudgetWall Street JournalReuters South Africa -Macauhub -Reuters Indiaall 56 news articles »Embattled Fed Faces Historic Audits Under House Proposal - eCreditDaily.comUnited Press InternationalEmbattled Fed Faces Historic Audits Under House ProposaleCreditDaily.comThe embattled Federal Reserve, the credit industry's chief overseer, will have its bailout programs and monetary policies audited by Congress, ...House Attacks Fed, TreasuryWall Street JournalThreatening the Fed's independenceWashington PostPanel Votes to Broaden Oversight of the FedNew York TimesNew York Times (blog) -MarketWatch -RTT Newsall 259 news articles »IMF Says Sri Lanka Reserves at 'Comfortable' Levels - BloombergAFPIMF Says Sri Lanka Reserves at 'Comfortable' LevelsBloomberg20 (Bloomberg) -- The International Monetary Fund said Sri Lanka's foreign reserves are at a “comfortable level”, as it reviews the island's economy for the ...Sri Lanka reserves 'comfortable' after bailout: IMFAFPHigher growth in 2010Ceylon Daily NewsIMF, Ukraine Still Looking For Agreement On 2010 BudgetWall Street JournalReuters South Africa -Macauhub -Reuters Indiaall 56 news articles »TEXT-Bank of Japan statement on monetary policy - ReutersTEXT-Bank of Japan statement on monetary policyReutersAt the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided, by a unanimous vote, to set the following guideline for money ...and more » |
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