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Lower Interest Rate Needed?

Consumer confidence in the UK market has been falling for the last three years with inflation and the housing problems that have been occurring.  It seems that the British pound fell again when the industry report regarding consumers was released this week.  The lower confidence and British pound is calling for the Bank of England to lower the interest rates.  The idea is that if the interest rates are lowered more consumers will go back out and start spending and that will help to strengthen the pound. 

The pound lost against 15 of the 16 most active currencies.  With the confidence being tracked the decline was and is considered to be a direct result of the reports.  There is also talk that a slowdown in the economy is part of the reason for consumer confidence being shaky and the pound taking a downturn.  The central bank’s policy makers have scheduled a meeting about the interest rate.

Adrian Schmidt part of the Royal Bank of Scotland believes that the central bank is going to cut the interest rates.  There is belief that the interest rate could be cut as much as a half percent, but most believe this is unlikely.  The chance of having the same cut as the US surprise with three quarters is not even being considered. 

As of Monday the pound was at 74.63 pence per euro.  This is actually up to the 74.57 pence of New York.  The Yen has also seen a slip in the current market as the US and UK has been scrambling to fix economic issues.  The Yen was down from 209.89 to 208.53 Yen.  This is the lowest it has been for several months.

Schmidt believes that the pound is going to rally though.  She believes that the UK pound should rally within the next month so that it will be 74.50 pence and $1.99.  At the central bank the policy makers have been talking about a reduction in the interest rate to 5.25 percent down from 5.5 percent.  Bloomberg spoke with 61 economists to get their thoughts on the matter.  It seems 59 of the economists believe only a quarter point will be made in reduction.

There was another survey that has some bearing on the UK economics as well.  It seems 1000 people were surveyed and the index as a result of this survey had a four point drop.  This means that in January the index dropped to 81 points and the stocks are seeing one of the worst downturns since 2004.

As for jobs there are some issues in this sector as well.  It seems there has been a demand for staff that is permanent.  The Recruitment and Employment Confederation showed the demand increased at the weakest pace in 26 months. 

Among other things this week in the UK sector the Government bonds actually raised in value despite the decline in the global stocks.  According to Bloomberg the two year note dropped 12 basis points.  Overall the idea that a rate cut is needed is pretty prevalent.


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