From Gloom to Doom
25 / Jan / 2009
Yet another turbulent week for UK Banks. The focus moved from Ireland back into the UK. Concerns over an RBS bailout and then a potential merger between Britannia and the Co-operative Bank and the press are having a field day ensuring that gloom turns to doom! However the concerns should be more focused on the UK with debt to GDP at 47% in the UK compared to 33% in Ireland. Last Friday was the day…we are now officially in a recession, well we didn’t see that one coming! Last Tuesday the inflation data was released and was surprisingly down less than expected although it fell by the biggest margin since April 1992. The headline rate of consumer price inflation slowed to 3.1% from 4.1%, it’s lowest level since April 2008 but still above the target of 2%. Lower petrol prices and heavy discounting by retailers being the cause for the fall. On Wednesday the Claimant Count, which shows the number of Britons out of work and claiming benefit, rose for the eleventh month in a row. It jumped 77,99. The ILO measure of unemployment, which includes those out of work but not claiming benefit, rose to 6.1% from 6%. The total number of people now unemployed came in just short of 2mln at 1,923,000. Wage Growth slowed in November with a headline rate of 3.1% in November compared to 3.3% in October but strangely Public Sector earnings rose by 4% compared to Octobers quarterly figure of 3.8. The Bank of England minutes showed the committee voted 8-1 in favour of a 50 point cut with only David Blanchflower calling for a 100 point cut. It was mentioned in the minutes that members did believe that there was a reasonable case for leaving rates unchanged until the following month and that previous cuts would provide a substantial stimulus but there was also a concern that a sharp fall in the pound could stoke inflation. They continued “with news on the economy still deteriorating rapidly and price pressures fading fast it seems very unlikely that the MPC’s job is done”.
This week is thin on the ground for data. On Thursday it’s the Nationwide House Price Survey and Friday it’s the Bank of England Consumer Credit, Mortgage Lending and Mortgage Approvals all of which will show steady declines, would we expect anything else?