No rate cut soon
By Guy Clapperton, 2nd April 2008 at 3:27 pm
Just when we thought things couldn’t look any bleaker for the markets (and by extension the business community), the Bank of England’s chief Mervyn King is playing down the chance of any rate cut next week.
I suppose you can see why; he has to think about inflation rather than rescuing the economy if indeed it is rescuable. Meanwhile everyone’s telling us not to panic just because of a little thing like First Direct refusing to offer mortgages to anyone who’s not already a customer.
Again, in isolation this makes sense and shouldn’t be a problem. Some of the other banks are experiencing problems so larger than normal numbers are gravitating towards them and they can’t cope. So they’re opting only to service existing customers. It’s all fine in isolation. It’s just that, looking at it as a whole, you can’t help but wonder how bad it’s likely to get before it picks up again.
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Personally, I’ll be very glad if there’s no cut in interest rates. The interest rate drops by the BOE vs none from ECB have meant that the GBP:Euro exchange rate is horrifically bad, as holding Euro becomes relatively more beneficial over holding GBP. The exchange rate is now 1.25 where it was 1.40+ at the end of last year. You can see the graph here: http://www.x-rates.com/d/EUR/GBP/graph120.html.
The depreciation in sterling is really not good news if you purchase or import a lot of your product from Euro land - in our case it’s primarily flowers and it’s a real pain. Clearly, hedging, through financial instruments and / or a natural hedge, would help, but in the meantime, I’ll be very happy if interest rates stay where they are for now, or go up (the latter is about as likely a snowman in summer though!).
Comment by Will - ArenaFlowers.com — April 3, 2008 #
Even if the rate was cut I doubt that the highstreet banks would elect to pass on the benefit. The sooner the full picture is disclosed on just how bad things are for all the banks and money markets the better.
Comment by John Harrison — April 8, 2008 #
[...] It has come to my attention that a number of readers may have been given the impression in one of my recent posts that there was no rate cut imminent. [...]
Pingback by Whoops… | SmallBizPod - small business blog — April 10, 2008 #