Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
The Three M's of Hyperinflation : Milosevic, Mugabe, And Maduro - 26th May 19
Global Multi-Market / Asset Charts Review - 26th May 19
An Oil Shock Could Be the Black Swan That Finally Drives Gold Higher - 26th May 19
Brexit Party Forces Theresa May to Resign, Boris Johnson Next Tory Prime Minister? - 26th May 19
IBM - Investing in AI Machine Intelligence Stocks - 25th May 19
Seasonal Dysfunction: Why Generations of Gold and Silver Investors Are Having Such Difficulty - 25th May 19
Employment - The Good and the Bad of Job Automation - 25th May 19
Gold Mining Mid-Tier Stocks Fundamentals - 25th May 19
Buy This Pick-and-Shovel 5G Stock Before It Takes Off - 25th May 19
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

UK 1% Interest Rate Cut

Interest-Rates / UK Interest Rates Nov 06, 2008 - 04:21 AM GMT

By: Nadeem_Walayat

Interest-Rates Best Financial Markets Analysis ArticleThe MPC meeting is widely expected by the consensus to cut UK interest rates by 0.5% today, however as my recent articles (Credit Quake Persists Ahead of UK Interest Rate Cut of 1%?) have concluded that effectively Gordon Brown cracked the MPC round table in half when he stood up at the House of Commons despatch box on 8th October to announce the interest rate cut of 0.5%, which was followed by the Bank of England's announcement. This suggests that the Monetary Policy Committee is now no longer totally in the control of setting UK interest rates and therefore in many aspects control has been transferred back into the Governments hands.


The existing Market Oracle forecast made prior to Octobers 0.5% cut, was for UK interest rates to be cut by 0.5% at Octobers meeting, with a further cut of 0.5% at Novembers meeting and a continuing down trend to 3.25% by September 2009. However the forecast was made at a time when the Bank of England was firmly in charge of interest rates, which now increasingly suggests that rate cuts could go much lower due the the repeated failure of the LIBOR interbank market to unfreeze as the below graphs illustrate.

Uk interest rate forecast 2009

UK 3 month interbank rate

Today's' actual rate cut will be highly indicative of who exactly is now in charge of UK monetary policy, i.e. if rates are cut by 0.5% then by and large the Bank of England still sets interest rates despite the fact that inflation targeting has been abandoned. A rate cut of 0.75% implies that the Bank of England has been greatly diminished in its interest rate setting role. A cut of 1% would imply that the Government is fully in charge of setting interest rates and dictates behind the scenes the amount to cut interest rates by at each MPC meeting, therefore the Banks monthly meetings are a facade that purely exist for publicity purposes.

The Real interest rate being born by the economy is far above the base interest rate of 4.5%, and even today's consensus cut of 0.5% to 4% will barely begin to impact on the UK economy as the below graph illustrates.

UK Real Economic Interest Rate

One of the primary reasons for the high economic interest rate is due to the slight of hand being used by Bank and Building societies since the start of the year by raising product rates before the base rate cut and then cutting afterwards therefore little net change as I highlighted some 10 months ago in the article - UK Interest Rates Cuts Will Not Help the Housing Market. In this light the Abbey raised interest rates by 0.5% on its tracker range of mortgages yesterday, and thus today's cuts will leave the rates unchanged and thus contribute to the widening in the gap between the base rate and the real economic rate as the above graph illustrates.

The situation is made far worse as the tax payer is now funding the bankrupt banks to the tune of £500 billion so as the banks will reduce their interest rates to customers which is not happening. The impact of this extra borrowing has been felt in the foreign exchange markets as the value of UK PLC has been marked down by over 25% in advance of the doubling of Britain's national debt, from £550 billion at the start of 2008 to more than £1.1 trillion by the end of 2009 and much higher forward inflation following the current asset price led deflationary period.

For forecasts and deeper analysis of for UK economy, inflation, and the much in demand UK house prices. Subscribe to our always free newsletter to get the scheduled analysis in your inbox on the day of publication.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Attention Editors and Publishers! - You have permission to republish THIS article. Republished articles must include attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

Nadeem Walayat Archive

© 2005-2019 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

6 Critical Money Making Rules