Judging the impact of QE
The BBC carries this interesting video discussion with De Anne Julius about the impact of the Bank’s Quantitative Easing programme designed to support demand and lending in the UK economy. She emphasises the importance of gradually withdrawing the QE programme and she argues that the main effect of QE so far has been to hold down the interest rate on government debt (gilts) but that there is little evidence so far that QE has enabled a rise in lending to consumers and small businesses. The Indy’s Big Question looks at QE in their edition today.
read more...»BoE Health Check on the UK Economy
The Bank of England has released its latest health check on the stability (or otherwise) of the UK financial system.
Without a recovery in financial sector balance sheets and a return of an appetite to lend and unfreeze the supply of credit, any recovery will be delayed and weak.
Banks continue to de-leverage aggressively and I have met several owners of profitable and well managed smaller businesses in recent weeks who have complained that their banks are getting in touch directly to change the conditions of their credit facilities. In some cases the banks are adding 1 or 2 per cent to the rates charged for overdrafts and loans - which themselves are already a high multiple of the policy interest rate. It is the banking equivalent of the rip-off extra charges for people flying with the lower-cost airlines.
read more...»King and Chancellor at odds over intervention
Both the Chancellor of the Exchequer and the Governor of the Bank of England gave their Mansion House speeches to the City yesterday, and both addressed the issue of regulation of the banking system. But while the Chancellor emphasised that he had no plans to fundamentally change the regulation system, the Governor called for more powers for the Bank to intervene and prevent excessive risk taking. This is at odds with the approach outlined by Alastair Darling, who referred instead to encouraging a change of management culture in the banks which would encourage bankers to manage themselves more effectively, being “rewarded for long-term success, not for failure”. He seems to suggest that the solution lies more in ensuring that banks are led by Boards of Directors with “the right people of the right skills and the right experience …. and they need to be equipped to ask the right questions.” He also called for an end to short-termism: “Their focus must be on long-term wealth creation and not short-term profits.”
read more...»David Miles - Brief Profile
A quick heads up on a brief profile of David Miles in The Times this morning
February 2009 – UK policy rates cut to historic low of 1%
The Bank of England’s Monetary Policy Committee (MPC) has lowered the Bank Rate by 50bps to 1.00%.
read more...»Homeowners step away from equity loans
During the housing boom millions of property-owners in Britain opted to unlock some of the equity in their homes by extending their mortgage and using it as a prop for extra spending such as a new car or other big-ticket consumer durables. Housing equity loans have also been made available by some lenders for older households to maintain their spending during retirement.
The Bank of England’s estimate of mortgage equity withdrawal (MEW) is intended to measure that part of consumer borrowing from mortgage lenders that is not invested in the housing market. It takes the increase in housing finance (net mortgage lending and capital grants) and subtracts households’ investment in housing (purchases of new houses and houses from other sectors, improvements to property, and the transactions costs of moving house).
But as the housing recession deepens and prices fall at an annual rate of more than ten per cent, the pattern of equity borrowing has reversed. For the second quarter in succession, people invested nearly £6 billion into housing equity - in effect thousands of people have taken the decision to scale back on equity loans and focus instead on repaying some of the outstanding mortgage debt as and when funds allow.
This change in borrowing psychology has been accompanied by tighter lending criteria being used by lenders making it more difficult and expensive for people to extend their mortgage. Just as the days of the 95% - 100% mortgage have gone for now, so the steady flow of equity release marketing coming through letter boxes has dried up completely. It is all part of the complex process of de-leveraging - an attempt by financial institutions to cut their lending and rebuild their balance sheets.
For the best part of a decade the booming housing market was a significant crutch for domestic consumer spending. Now that equity withdrawal has gone into reverse and with unemployment expected to rise by up to one million over the next year, there are two major drivers of household spending pointing firmly in a downwards direction. The collapse in equity withdrawal is evidence of greater caution among consumers but is yet more bad news for retailers.
The BBC covers the latest data in this article
The Bank’s Recession Forecast
The Bank of England has published its latest Inflation Report and used the opportunity to produce a set of macroeconomic forecasts that are significantly more pessimistic than just a few months ago. The BBC reports on the Inflation Report here. There is an overview available from the bank here - four pages that are worth taking AS students through to apply their understanding of AD-AS.
It’s official - we can now use the R word
This excellent short video from Channel 4 news highlights the speech from Mervyn King in which he confirmed the Bank’s view that the UK is headed for a recession.
read more...»Rachel Lomax on her career and a changing economy
An excellent piece from BBC’s Woman’s Hour in which Jenni Murray interviews Rachel Lomax about her career including her stint as a deupty governor of the Bank of England and member of MPC and the changes she has seen in the UK economy. Hat tip to Penny Brooks for alerting me to the interview.
Central Banks- Power Failure?
Tonight on BBC Radio 4 (8pm) there looks like there will be an excellent hour long programme presented by Robert Peston examining whether central banks in the west have lost their power. Have a listen, there are bound to be lots of good last minute evaluative points you can get into you answers.
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