Brown Leans on Bank of England to Cut Interest Rates
Apr 9th, 2008 | By Ben Traynor | Category: International InvestingThe doves are out in force. The Bank of England’s Monetary Policy Committee (MPC) meets tomorrow, and an interest rate cut is most definitely on the agenda.
Pretty much everyone, from homeowners to the Confederation of British Industry (CBI) wants rates to come down… the market has priced in a quarter-point cut… and what’s this? Gordon Brown — the same Gordon Brown who, as chancellor, granted the Bank operational independence in 1997 — is also sticking his beak in.
“If you look at this situation, because we’ve got low inflation we can cut interest rates,” the prime minister said.
Hang on, Gordon. Isn’t the MPC supposed to set rates independent of political considerations? Naughty, naughty Mr Brown…
In fact, there’s some speculation that Brown’s comments may have angered the MPC hawks, who’ll now argue more fervently to keep rates on hold. I’ve said before I’ve got this hunch the MPC might take the chance to wrong foot the market and boost its credibility. Now that Brown’s lumbered into the debate, might that now prove too tempting a proposition?
I’m at odds with my colleagues on this one. They, along with most people, expect the base rate to come down to 5% tomorrow. After all, there’s plenty of gloomy news about to prompt a loosening of monetary policy. Halifax has revealed that house prices fell 2.5% in March — the biggest (seasonally adjusted) monthly fall since September 1992, when they fell 3%.
Meanwhile private banks remain reluctant to lend. But there are signs that the market could be starting to find a solution. HSBC, which doesn’t rely on the money markets to make loans, is offering to match homeowners’ existing fixed-rate deals. Some of these mortgages rates are as low as 4.54%.
HSBC will do well out of this, mopping up a lot of new business. It’s benefiting from its strong position, brought about by a solid business model. It’s profiting from its competitors’ weaknesses.
That’s how capitalism works.
US Federal Reserve makes earth-shattering prediction
I’m going to be upfront with you. The headline above is sarcastic. It refers to the minutes of the Fed’s meeting of March 18, which were published yesterday.
The minutes contain such statements as “prolonged economic downturn could not be ruled out” and “many participants thought some contraction in economic activity in the first half of 2008 now appeared likely”.
Also making big waves is the International Monetary Fund (IMF). Today it made front page news (in Metro anyway) by putting a figure on how much the credit crisis will cost.
The figure, printed by the Times in a scary red typeface, is $945,000,000,000 — almost $1 trillion.
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“This is an arbitrary figure,” says Theo Casey, one of our research team. “Bear in mind, most of the banks sustaining these losses are still in profit.”Garry White, our commodities man, agrees. “It’s a political move, designed to put pressure on the G7 before their meeting in Washington,” he said.
Indeed, the IMF’s Global Financial Stability report, in which the estimate was published, contains the following line:
“The critical challenge now facing policymakers is to take immediate steps to mitigate the risks of an even more wrenching adjustment.”
The air rings with clamours for leaders to “Do something”. It’s what that something is that worries us…
Gold analysts… oil analysts… they’re all wrong!
Gold fell through $909 yesterday, and still looks to be falling. It’s making a few investors nervous about the yellow metal…
“Ignore them!” is the shout from our commodities desk — where Garry White (who’s already done nicely out of gold, thank you) reckons conditions are ripe to send the price much, much higher.
Oil, meanwhile, is around $108 a barrel. Garry doesn’t see that falling much either. Even oil analysts are starting to catch up with him. The Energy Information Administration, and arm of the US Department of Energy, last night upgraded its oil price forecast by a massive amount.
As well as gold, Garry’s got great exposure to oil, too. And he’s got a clever little move that could prove highly profitable — if you get in before 29 April that is…
Where the money is, that is where we shall go…
“This proves what I’ve been saying all along,” said an excited Manraaj Singh this morning, with that trademark gleam in his eye.
Manraaj, our emerging markets hot shot, was telling me about an auction that took place at Christie’s yesterday. Buyers paid huge sums for such artefacts as single leaf from an ancient Koran manuscript. The bids received shattered what Christie’s expected to get.
So why is Manraaj so excited? Because of who the buyers are, that’s why! There’s a huge amount of money out there in the developing world, and conspicuous consumption such as that seen yesterday proves it.
But this money isn’t just being spent at auctions. It’s being invested — and Manraaj is keeping a close eye on where it’s going.
“We’re talking trillions and trillions here,” he says. “If we make the right calls now, we’ll clean up!”
And that’s exactly what Manraaj plans to do! Find out how, with one specific investment, you could clean up as trillions of dollars of Gulf oil money is invested worldwide…
Until tomorrow.
Ben Traynor
Editor
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