Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
Post Yellen = Market Confusion - 28th Aug 16
Theresa May Instructs Police, NHS Gp's, Public Sector To Stop Racial Discrimination in Service Delivery - 28th Aug 16
Ignore Yellen and Buy the Dip in Precious Metals - 27th Aug 16
SPX Downtrend Should be Underway - 27th Aug 16
Unraveling the Secular Economic Stagnation Story - 27th Aug 16
The Precious Metals Sector and the Fed. . . - 27th Aug 16
Stock Market - All Is Calm, All Is Not Right - 27th Aug 16
Gold Junior Stocks Q2 2016 Fundamentals - 26th Aug 16
Buy Gold’s August Dip? Gold’s Monthly Sweet Spot In September - 26th Aug 16
The IMF’s Internal Audit Reveals Its Incompetence and Massive Rule Breaking - 26th Aug 16
Commodities Are the Best Bargain Now—Here’s What to Buy - 26th Aug 16
Why I Left Canada and Became A Citizen of the Dominican Republic - 26th Aug 16
The GLD vs GOLD - 26th Aug 16
Can Stocks Survive Without Stimulus? - 25th Aug 16
Why Putin Might Be on His Way Out - 25th Aug 16
Bond Guru Gary Shilling - The Bond Market Rally of a Lifetime - 25th Aug 16
A Zombie Financial System, Black Swans and a Gold Share Correction - 25th Aug 16
OPEC’s Output Freeze: What Has Changed Since Doha? - 25th Aug 16
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16
Vauxhall Zafira Fires - Second Recall Issued - Inspection Before Bursting into Flames? - 21st Aug 16
Will the Stock Market Bubble Pop Regardless if the FED Never Raises Rates? - 21st Aug 16
US Government Spending - 3 Big Stories Not Being Covered – Part III - 21st Aug 16
Silver Analysis - 20th Aug 16
SPX New Highs, Correction Next? - 20th Aug 16
Housing Bubble - The Marginal Buyer Holds The Pin That Pops Every Asset Bubble - 20th Aug 16
Gold Miners Q2 2016 Fundamentals - 19th Aug 16
Which Price Ratio Matters Most in a Fiat Ponzi? - 19th Aug 16
Big Policies, Bigger Failures - 19th Aug 16
Higher Crude Oil’s Prices and USD/CAD - 19th Aug 16
Here’s Why You Should Look for Dividend Stocks and How - 19th Aug 16
Deglobalization Already Underway — 4 Technologies That Will Speed It Up - 19th Aug 16
These 6 Charts Show Why the Average American Is Fed Up - 18th Aug 16
SPX Easing Lower - 18th Aug 16
Low / Negative Interst Rate’s Legacy - 18th Aug 16
The 45th Anniversary of The Most Destructive Event In Modern Monetary History - 18th Aug 16
USDU - An Important Perspective on the US Dollar - 17th Aug 16
SPX Completes Wave 1 Decline - 17th Aug 16
How to Quickly Spot Common Fibonacci Ratios on a Chart - 17th Aug 16
When Does a Forecast Become a Trade? - 17th Aug 16
Kondratiev Wave - The Financial Winter Is Nearing! - 17th Aug 16
Learn "The 4 Best Elliott Waves to Trade -- and How to Trade Them" - 16th Aug 16
Stock Market Bears Turning Bullish At New All Time Highs - Time to Get Worried? - 15th Aug 16
Job Seekers Sacrificed to the Inflation Gods - 15th Aug 16
A Look At Commodities and Financial Markets Trading Week Ahead - 15th Aug 16
Stock Market New Top Forming? - 15th Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

How to Trade Elliott Waves

UK: Interest Rate Hike Expectations Ease But Don't Rule Out Further Tightening

Economics / UK Interest Rates Mar 22, 2007 - 12:01 PM GMT

By: Victoria_Marklew

Economics

The minutes of the March 8 meeting of the Bank of England's (BoE) Monetary Policy Committee (MPC) have caught the markets by surprise, with an unexpectedly-dovish 8-1 vote to leave rates on hold, and the one dissenter a vote for a rate cut. The members noted that "the upside risk to inflation from wage growth might have started to diminish," and "financial market volatility added to the case for holding rates." So, can we assume that the current 5.25% repo rate is the peak? Not yet.

Yesterday came the news that the EU-harmonized rate of inflation , HICP, hit 2.8% in February, up from 2.7% in January - still far above the BoE's 2.0% medium-term target. The Retail Prices Index (RPI), the basis for most wage negotiations, climbed to a 16-year high of 4.6%.


Last week, the BoE's quarterly inflation survey found that expectations for the rate of inflation over the coming year were unchanged from the November survey, at 2.7%. While this remains well above the BoE's 2.0% target, the stabilization of expectations is likely to be comforting to the members of the MPC. However, with the RPI at a 16-year high, there is still a risk to inflation expectations.

Last week's report on average earnings showed the fastest three-month rate of growth since the summer, with November-January earnings up an annual 4.2% (4.0% in October-December). However, excluding bonuses, which were concentrated in the booming financial services industry, earnings growth eased from 3.7% to 3.6% - suggesting that the closely-watched January pay round was relatively benign.

The British Bankers' Association reported a fall in the growth of credit card debt in February, marking seven straight months of lower consumer borrowing. On the other hand, the housing market continues to show a surprising level of resilience despite three rate hikes since last August. Underlying net mortgage lending rose by a still-robust £5.2 billion in February, down only slightly from £5.4 billion in January. Still, this did mark three successive months in which lending rose by slightly less than the month before, suggesting that we may be seeing the start of a moderating trend.

However, data from the Building Societies' Association showed that mortgage approvals, a forward looking indicator of housing demand, rose a seasonally adjusted £5.4 billion last month, down only slightly from the record-high £5.8 billion seen in January, and the highest level on record for the month of February. And, money supply growth remains strong, climbing an annual 12.8% in February (12.9% in January). All told, it is too soon to call the end of the current housing cycle recovery.

Over on the fiscal side of the policy equation, Chancellor (and PM-in-waiting) Brown today delivered his eleventh consecutive annual budget (making him the longest-serving Chancellor since the 1820s). It clearly was designed to win back support for the Labour Party ahead of PM Blair's retirement (expected within the next six months) without totally undermining Brown's reputation for relative fiscal prudence.

The Chancellor announced headline-catching cuts in the basic rate of income tax and in the corporation tax, but also tweaked some other tax margins such that the overall impact of fiscal policy should be broadly neutral. However, Brown's forecast of a gradually-narrowing fiscal deficit looks overly optimistic. It is based on the assumption that GDP growth will climb as high as 3.25% this year and 3.00% in 2008. With this year's growth likely to be closer to the 2.74% seen in 2006, tax revenue is likely to fall short of the projection.

So, where does all this lead interest rates? The prospect of one more rate hike in April or May has dimmed a little but not disappeared. In its February Inflation Report the BoE concluded that inflation would be slightly above the 2.0% target in two years time if the repo rate stayed at 5.25%. And while the MPC seems to be feeling more sanguine - even the two most hawkish members voted to stay on hold this month - they are not yet ready to rule out the need for additional tightening.

The minutes note that most members felt that risks to inflation in the medium-term remain "on the upside" due to capacity constraints, strong price intentions among businesses and strong money supply growth. Key reports due before the April 5 MPC meeting include February retail sales (March 22), and BoE consumer credit and mortgage lending for February, due on March 29.

By Victoria Marklew
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Victoria Marklew is Vice President and International Economist at The Northern Trust Company, Chicago. She joined the Bank in 1991, and works in the Economic Research Department, where she assesses country lending and investment risk, focusing in particular on Asia. Ms. Marklew has a B.A. degree from the University of London, an M.Sc. from the London School of Economics, and a Ph.D. in Political Economy from the University of Pennsylvania. She is the author of Cash, Crisis, and Corporate Governance: The Role of National Financial Systems in Industrial Restructuring (University of Michigan Press, 1995).

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife