Expectations are mounting that the Bank of England may deliver as much as a 1 per cent cut when it announces the outcome of its monthly monetary policy meeting today. 50 basis points is seen as an absolute minimum.
But some economists are entertaining even more extreme views. Former MPC member and LSE professor Charles Goodhart touted on Channel Four news last week the bank may have to lower rates as far as zero. Yes, that’s right. Japan-style zero.
That view was most recently reinforced by Michael Saunders, chief western European economist at Citigroup in London. He told Bloomberg the bank should be prepared to go that far if necessary.
Some of the latest headlines giving increasing credence for such a move:
- UK car sales falling no less than 23 per cent in October. That’s the sixth consecutive monthly decline reported by the Society of Motor Manufacturers. No surprise the Daily Mail is reporting cases of UK dealers actually offering “Buy one get one free” car sales offers.
- House prices declining by 2.2 per cent in October alone, according to Halifax data. That compares to a fall of 1.3 per cent in September, the sharpest drop since May. On the year, house prices were down 15 per cent in October – a sharper decline than seen in the early 1990s downturn.
- The fact politicians are having to beg high-street banks to pass on BoE cuts. That follows statements from the head of HSBC David Hodgkinson, that consumers may not see any benefits in the event of a BoE rate cut.
In other bad news for the UK, restaurateurs are being scorched by higher financing costs and the fact that people apparently just aren’t eating out as much. Some notable sufferers include Michelin-star bearing Tom Aikens’ whose two London eateries recently sought protection from creditors last week. The tourist industry has of course had to contend with the collapse of tour operator XL. Oh and lets not forget the new trend gripping the fashionable – the art of clothes recycling. The view from the experts? Simon Derrick, chief currency strategist, at Bank of New York Mellon says this:
As regular readers will be aware, we struggle to find anything positive to say about GBP. The forecast that the UK is likely to face the deepest recession of all the G7 nations (driven by the importance of the financial sector within the broader economy and the collapse in the housing market) seems to be a reasonable one and suggests that the bank rate (the highest policy rate within the G7 nations) may still have a
long way to fall. We certainly find little to argue with in market forecasts that the MPC could have cut its rate by 150 bp by March of next year, or that 75 bp or more of this could emerge later today.
Related links:
Buy one car and get another one FREE as car dealers try to boost sales – Daily Mail
Credit crunch chic: how to save pots of money – The Times
UK house prices fell 2.2% in October – FT
Car sales fall by more than 20 percent – Reuters