Finance news uk
The Central Bank of England cut the bank interest rates by 25 Bps today, on Thursday, from 5.75 to 5.50% in order to create a surge in the financial markets and the real estate sector wherein depression is widening its grip day by day.There was a lot of debate regarding this rate cut and just a week ago only a few analysts were of the view that the time has ripened for a further rate cut after two years of constancy.They have put in the following points in their debate to convince others:
The Chartered Institute of Purchasing and Supply/Activity index has analysed that the British service sector is experiencing a recession in its growth and has fallen from its previous months levels of 53.1% to 51.9% in this month.The tertiary sector generally progresses only when the general conditions of the economy are healthy and the people are earning well, to satisfy their life requirements.In short, a fall in this sector implies a recession in the economy.
The housing sector in the UK has taken the bite of recession owing to the US subprime crisis and as such is facing a 1.1% deflation in the house prices and the analysts are of the view that the prices are going to stay flat for some time from now.The owners who find that their equity in their property is dwindling are trying to dispose off their properties with hardly any takers for them, owing to the credit crunch.
The British largest lender Northern rock is facing financial trouble and has just been pulled out by the British Government which has announced that it would draft a plan for nationalising the institution in case there were no takers for it.After this assurance, the stocks of this company have risen a bit.However, trouble is for the layman who is not assured of credit from such a big lender.Only when the company swims through the trouble, it would be able to help others.
The Sterling is weakening day by day and yesterday, it has shredded 0.9% to end at 99.80 a mark below 100 which is the lowest record after mid 2006.Also, it weakened against the Euro to its 4-1/2 year lowest levels.A weak currency depicts a slowdown in the economy and a negative consumer confidence.Once the investors averse themselves from the markets to avoid the risk of losses, bearish sentiments creep up which would take months to settle down.
In view to all the above points, the ECB has organised a meet to discuss the future course of action today, in the afternoon.This meet was much awaited by many analysts and banks as it gives scope for an easier credit which can enhance consumer spending.The rumour of a rate cut in this meet was in the air from past one month or so when the Bank of Canada, which acts as cursor for the international banks, announced a sudden rate cut.Also, the US has recently announced a 75Bps rate cut which also augments well for a rate cut in the UK region, failing which, costly credit in the economy may shatter the profits of the trading firms.
Little fresh activity has been witnessed yesterday that the FTSE100, which trades on the blue chip stocks has gained by 2.8% i.e.by 178.60 Bps.Following the suit, the all FTSE and Tech mark have also posted marginal improvements of 86.89Bps and 29.97Bps respectively.The improvement can be attributed to the speculation of an interest rate cut from the current 5.75% to 50 basis points by the ECB which is scheduled to meet today to discuss the issue.But, as the ECB was not much positive about the rate cut, yesterday, the excitement waded a bit in todays markets.However, now that the news of 25Bps rate cut (though lesser than what was speculated) may bring in fresh energy into the markets.
Truly, the ECB was not very much inclined to cut the rate and has announced previously that it needs more visible reasons to do so.It has indicated that the rate may be unchanged for the next year too.It cited reasons that a rate cut would instigate the inflation rate and artificial prices and as such, it is not going for it.To some extent, it may be right.This may be the reason that it has only cut 25 Bps instead of 50Bps as demanded by the analysts.But for the general investor, things would have been very hard if this move had not been taken.So, this comes as a Christmas bonanza for him!
Whatever may be the reason, if the bank would have postponed its decision to cut the rate, there would have been a further dip in the markets for some months together which is not a welcome sign for any healthy economy.Actually, it is still very early to say, how the public would behave in this changed scenario.Whether, they would be bullish as expected by the Bank authorities or bearish that the rate has not been cut as expected by them.He should feel that credit in this economy is cheaper in comparison to the other economies and thus try investing for reaping profits.Only if the general investors feel the ease in the credit market, then only the efforts of the bank authorities would be fulfilled.
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