The inside word from the City: Interest rates

Holding our interest

Thu, 08 May 2008 10:13:14 GMT

All eyes are on the Bank of England’s Monetary Policy Committee this afternoon to see if its boffins will deign once again to get out their big scissors and cut interest rates to prop up the economy. But Cityblogger isn’t holding out much hope that he’ll see a drop in his mortgage payments, despite the fistful of used fivers he sent to the Old Lady of Threadneedle Street yesterday, strapped to Tiddles with a begging note….Er…only kidding! There are, of course, few spare used fivers in the Cityblogger household anyway…!

The widely held feeling in the City is very much that the MPC will keep rates on hold, with possibly a cut expected next month. Although some weak economic data out this week led to some traders holding out faint hope for a quarter per cent cut in the base rate. “The consensus is that interest rates are not moving,” Howard Wheeldon, senior strategist at BGC Partners, told Cityblogger this morning. “[Although] there was a bit of a wobble yesterday with the Pound that suggested more bad economic news [might lead to a cut]. I’d probably be very surprised if we don’t see a 25 per cent cut next month, however. There’ll be another month of economic data and 90 per cent is likely to be bad, so there’ll be pressure on the bank to react.”

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A distinct lack of interest

Fri, 11 Apr 2008 08:34:10 GMT

From the dull performance of the FTSE 100 yesterday, Cityblogger would have thought the Bank of England hadn't cut interest rates at all! Never was a rate cut greeted with such a lack of enthusiasm! The equity markets were muted as most investors had expected the 25 basis point cut to 5 per cent, although some had dared to dream of more. On the plus side, it looks increasingly likely that another one could soon be in the offing.

Grim news today from the High Street, though. Sir Philip Green's privately owned BHS says profits will fall this year, blaming clothing price inflation in China. And DSG, owner of Curry's and Dixons, has issued another profits warning, complaining of poor computer sales and customers being unwilling to pay top dollar for electronic goods. At least the bid interest for British Energy has provided some cheer and the FTSE 100 is up this morning just under 1 per cent to 5999. Will we see it push back through 6,000 and hold onto any gains, Cityblogger wonders? Fingers crossed.

Have a good weekend.

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Interesting times

Wed, 09 Apr 2008 10:13:12 GMT

The City is chewing on its collective knuckles to see if the Bank of England’s monetary policy committee will trim interest rates once again on Thursday.

Traders are largely pricing in a 25 basis point cut, so if it doesn’t go their way it’s likely it could all end in tears, with the equity markets reacting unfavourably. But those in the know say a cut is very likely. “I do think we’re going to see a token 25 basis point cut because that’s what the markets are screaming for,” Tom Hougaard, chief market strategist at City Index, told Cityblogger this morning. “We’re all such cry babies these days. Nobody thinks about inflation and the minute somebody feels the pinch and there’s any fear of voter migration [interest rates are cut]. It’s so bloody political.”

A handful of blue chips stocks have also gone ex-dividend today, which has put some downward pressure on the FTSE100. Investors remain jittery too about banks and mortgage lenders after the worrying house price survey yesterday from Halifax. Cheeky HSBC, which doesn’t borrow from the money markets, is trying to make a buck from its rivals’ woes. It’s offering to match borrower’s existing fixed-rate mortgages. The rub is that customers have to have 20 per cent of the equity in their house. Mmm…

What’s more, the International Monetary Fund decided it would cheer us all up by estimating the credit crunch could cost the financial sector $1,000 billion. The good news, it says, is that the banks have probably already taken the worst of the write-downs necessary, but pension funds, insurance companies and hedge funds could be in for further difficulties and liquidity will remain an issue. And according to a leaked report published in the Daily Telegraph, it’s also cut growth forecasts for the UK for this year to 1.6 per cent, slating the same for 2009, and is increasingly concerned about the stability of house prices in the UK and the possible effect on the economy if they fall. Alistair Darling said the IMF’s findings were “not surprising”, but City pundits are unimpressed by the government’s handling of the economy. “Cobblers!” Said one of Mr Darling’s so-called prudence.

Worryingly Mr Hougaard thinks that while the media is hyping up the credit crisis to nightmarish proportions, guaranteed to frighten the wits out of the non-investment savvy man in the street, there is still worse to come. “I’ve studied the stock market for 10 years and I just don’t think the economy is ugly enough yet,” he says. “If I were an investor I’d get out of the markets now.”

Oh dear...

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Rates on hold

Thu, 06 Mar 2008 14:06:58 GMT

Surprise, surprise, the Bank of England's MPC has decided to leave rates on hold at 5.25 per cent. For once, the MPC's release was remarkably terse with little explanation of the whys and wherefores. So investors will have to wait for the minutes to be released on 19 March to find out how members voted and what was discussed. But most City commentators believe it's all down to worries about rising inflation, with spiralling food and energy prices playing their part. On the positive side, Chris Iggo, senior stategist at Axa IM, predicts that interest rates will eventually be trimmed to 4.5 per cent, with the next cut in April or May.

As a mortgage slave, Cityblogger has fingers and toes crossed!

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