Back from the Brink
26 / Oct / 2008
It appears that the Brown/Darling plan, Toxic Asset Relief Plan and concerted softening in global monetary policy could well be starting to take effect. Market interest rates have been trending downwards all last week as banks generally have looked at their peers, judged them sound (all be it with varying degrees of government support) and have started to lend to each other again. For those with liquidity and ability to place with quality institutions anything over 6.00% for between 6 and 12 months looks especially good and will not be available for long.
If you believe the BBC with their snappy “Downturn” graphic we are all unemployed, homeless and doomed to a generation of misery. Could someone tell “Auntie” that the 1990’s recession was caused by inflation – we are dealing with tight liquidity and deflation! Analysts are predicting that this weeks’ data could spread some warmth amidst the recessionary chill. Whilst Consumer credit, house prices, and consumer confidence are all expected to remain weak there may be surprises in the mortgage sector. Approvals are predicted to remain near historic lows of 32,000 (but there is still activity of some sort) but mortgage lending is expected to have rocketed from 0.143bln to a mighty £1.0bln. Not exactly asset bubble territory but it does give empirical evidence to support stories that first-time buyers (once thought extinct) have been spotted cautiously emerging from their burrows. Sterling’s rapid decline caused by dealers selling higher yielding currencies for low yielding but more stable ones will bring immense cheer to exporters. Manufacturing exporters (also thought extinct) which are big users of energy get a real bonus – Sterling’s 20% fall coupled with oils decline of 55%+.
We are in a recession and probably have been for some time and we will see unemployment rising, especially in the construction, banking and retail sectors. It is certain that the Bank will have no choice but to cut Base Rate further faster – a cut of ½% in November cannot be ruled out although the consensus is for a ¼%.