Forward To The Past
29 / Jun / 2008
Money market rates continue to be defined by the major banks desperate need for cash, there is at least one UK bank out there offering 7.00% for 1-year money. As we have seen over the last 9 months, the approaching quarter end sees rates hit the roof as those banks with sub-prime losses seek to put cash on the balance sheet to compensate. Rates should decline over the next two or three weeks as the clearers and big Europeans lend to the market again.
Looking at the wider domestic economy, this week will see some really unpleasant figures from the Nationwide, the Halifax and the Bank regarding the housing market and consumer debt. House prices are expected to have declined further again this month, as sellers cut prices to entice would be buyers. The problem is that as prices decline then buyers are going to be more inclined to wait for further reductions prompting a 1990’s vicious circle. After the surprise increase in May’s retail sales volumes analysts are eagerly awaiting the Bank’s consumer credit and debt figures. If we did actual buy more goods and services last month then credit card debt must have increased as salaries are not covering the increases in food and fuel costs and equity release is a non-starter.
If a wavering housing market wasn’t enough then the GfK-NOP June consumer confidence survey results will complete the gloomy picture. The balance of the miserable is expected to have advanced yet again as consumers wrestle with rising costs, falling house prices and stagnant wages. It could be argued that in the past we have talked ourselves into a recession. This will not be the case this time as rising commodity prices and static earnings are combining with over-indebtedness at both a personal and Governmental level. The only effective solution would be a shift in fiscal policy however government-spending levels make this impossible (monetary policy is currently irrelevant).
There is one bright spot though; Gorgeous Gordon has been PM for 1 year. Happy anniversary Mr. Brown.