User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday April 7, 2008 - 10:01:59 GMT
Lloyds TSB Financial Markets -

Share This Story:
| | Email

Economics Weekly - Tighter credit conditions will weaken UK economy and raise default rates; Weekly economic data preview - Bank of England may cut base rate on Thursday

Economics Weekly  7 April 2008

Tighter credit conditions will weaken UK economy and raise default rates

Credit conditions report shows supply of credit being restricted…
The latest UK credit conditions survey from the Bank of England made grim reading. It suggested that credit conditions will tighten even further for UK households and companies in the next three months, after a pronounced tightening in the three months to March 2008, which itself was more than was expected at the end of 2007. At the same time, the survey reported that lenders also intended to widen spreads, effectively raising the cost of borrowing to households and companies. Thus it was no surprise that the report also showed that a greater number of lenders expected default rates on loans in the UK to rise, after been higher than expected in the previous three month period.

…and a rise in default rates. This could prompt a cut in base rates this week…
From an economic perspective, these trends clearly imply weaker economic growth, as a fall in the supply of loans relative to continued strong demand means weaker consumer spending and also lower than otherwise business investment spending. This may help to prompt a pre-emptive rate cut this week from the MPC, to 5% from 5.25%, rather than wait for a fuller analysis of the economic situation in the May Inflation Report before cutting.

Chart a shows that the availability of mortgage loans will be restricted even further in the next three months than was the experience of the last three months. For unsecured credit, which saw a sharp rise in February - implying that borrowers have turned to that source as mortgage finance has dried up – availability is expected to remain constrained in the quarter ahead, but not by as much as the actual action taken by lenders in the preceding three months. In one sense, the rise in unsecured borrowing showed in official data for February, up £2.4bn, could be taken as a sign of distress borrowing rather than healthy spending though it is also the case that retail sales volume growth has been remarkably strong in the first two months of 2008, up by an average of 1% in each month. Corporate lending conditions are expected to remain restricted but to ease in terms of the expected tightening in the next three months compared with expectations in the preceding quarter, and the actual tightening of credit in the three months to March. However, as chart b shows, lenders think default rates on loans (secured, unsecured and corporate) are likely to rise in the next three months, particularly for mortgages.

…as a lack of credit and higher defaults will weaken UK economic growth
Two questions are probably worth asking at this point: what does this credit conditions survey imply for actual UK default rates and what are the financial markets already pricing in for insolvencies in the period ahead? But first of all what has been happening to actual defaults, have they, as the report implies, been rising sharply recently? Data for the first three months of 2008 are not yet available, but the number of individual insolvencies has fallen and the number of corporate defaults has risen only slightly in the three months to December 2007. Individual defaults in Q4 were 24,846, down from 25,847 in Q3 and company insolvencies were 3,135, just 10 higher than in Q3, see chart c. In fact, if one looked at percentage changes year on year in these insolvencies, they are actually down on the year before, see chart d.

Actual UK default rates are rising from a low level and after recent declines…
It is certainly the case that UK mortgage arrears are rising, so this implies that individual defaults will rise in 2008, or at least the segment that is related to these loans. Our forecast for mortgage arrears though shows that the expected rise is well below that which occurred in the last housing market crash in the early 1990s, see chart e. This forecast takes account of slower economic growth in the UK – our projection is for 2.2% this year - and base rates being cut to 5% in Q2 (more likely now in April than in May but certainly in one of these months). However, the forecast does suggest that this will be the worst year for mortgage defaults in a decade, taking them back up to 1998 levels.

Company defaults are also expected to rise as a result of the economic slowdown, tougher credit conditions and slower growth in the global economy, but the rise will still be well below the average since 1992 and well below the level it reached during the 1992 recession. But our forecasts may be too optimistic and so we have tried to take into account the current market view of likely company default rates in the UK. The first method uses the spread on UK company borrowing for investment grade firms and above. This shows that the market implied view of UK company defaults in the year ahead is well above that in our forecast, taking the ratio of company liquidations to 1.3% of active companies, compared to our 0.8%. However, even this is well below the levels that prevailed during the 1992 downturn, see chart f. An alternative method is to take into account the implied view of the credit market, using the European itraxx index. This implies a similar default rate to the corporate spread approach, only slightly higher at 1.4% of active UK companies.

…but the main concern may be to prevent this from getting even worse because of the lack of credit
If the financial market view is proved correct, the implication is that UK economic growth may be slower than in our central case, and so corporate failures are higher, but even in that case, the rise in UK default rates will still be relatively small compared to the early 1990s experience. This does not support claims that US style rate cuts in UK interest rates are likely, as economic growth is not expected to hit recession levels even by the interest rate profile expected by financial markets. In other words, implied company default rates in the financial markets are not those associated with UK recession. But of course, what it does imply is that there are serious worries about downside risks to UK economic growth.

Trevor Williams, Chief Economist


Weekly economic data preview

Bank of England may cut base rate on Thursday

UK base rate is forecast to fall by 0.25% to 5.0% on Thursday after a weaker than forecast March survey of services activity and a substantial tightening in credit conditions since the March MPC meeting. The decision is likely to be a very close call as inflation is a major concern. We would not be surprised if rates are kept on hold. The European Central Bank is likely to keep its key interest rate unchanged at 4.0% after the rise in CPI inflation in March to an all-time high of 3.5%. Consumer confidence will attract most of the attention in the US where last Friday's weak employment figures suggest that there is likely to be another interest rate cut on April 30th. Central banks are likely to discuss funding measures to tackle the credit crisis and the volatile nature of foreign exchange markets at the G7 meeting.


• The MPC meeting is obviously the main event of the week in the UK, where we now expect the committee to vote in favour of a 0.25% cut in base rates to 5.0%. There are a number of reasons for why we brought forward our forecast from May and these are primarily related to the growing risk that economic growth could fall below trend in the near term. Whilst we acknowledge the persisting threat of inflation, below trend growth should over time help inflation pressures to subside. There is no question that the Bank faces an extremely difficult balancing act. Back in February the Bank in its quarterly Inflation Report argued that economic growth would probably slow, possibly quite sharply, and that on this basis one reduction in base rate would probably be justified. With the exception of the services PMI survey last week, activity data has not yet been that clear cut and this implies that a rate cut on Thursday, should it come, should be viewed as a pre-emptive one. A decline in the services PMI survey to 52.1 in March from 54.0 in February marked the biggest monthly drop since October to a level that in the past has persuaded the MPC to cut rates before (December 2007 and February 2008). In addition, the Bank last week published a distinctively downbeat quarterly credit conditions survey which showed a 'material reduction' in the availability of secured credit to households and tighter conditions for companies looking to raise capital. This is of course obvious in the mortgage market where the rise in Libor last week to 6.0%, 0.75% above base rate, has led lenders and mortgage providers to impose more stringent criteria and raise the cost of borrowing. This could exacerbate the slowdown in household consumption and business investment. Another argument for a rate cut is the Bank's quarterly regional Agents survey, which at the end of last month showed a deterioration in business conditions. This ranged from a fall in investment intentions, an easing in household consumption and weaker activity in manufacturing and services industries. To be sure, the worsening inflation backdrop - we forecast that CPI may again accelerate to 3.0% this spring - will ensure that a lively MPC debate takes place and that the vote to cut rates is unlikely to be unanimous. Economic data due this week includes industrial output on Wednesday and global trade on Thursday.

• Consumer confidence data for March heads up a quiet agenda for US economic indicators. A rise in the unemployment rate in March to 5.1% and falling house prices are likely to have sapped consumer sentiment last month and this could weigh on household consumption in the second quarter. Discussions are set to continue between Congress, the Treasury and the Fed about reforms to the housing and mortgage markets and the supervisory role of the Fed.

• Interest rates in the euro zone are forecast to stay on hold at 4.0% on Thursday. A rise in CPI inflation to 3.5% in March and demands for substantial wage increases, in some cases in excess of 5%, by union workers in Germany will not be welcomed at the ECB. Hawkish comments by council members Weber, Garganas and Wellink last week are likely to be repeated by president Trichet on Thursday, despite mixed signals on the economy. Whilst unemployment continues to fall, some indicators of business activity are pointing to slower Q2 gdp growth.

Kenneth Broux, Economist

Economic Research,
Lloyds TSB Corporate
10 Gresham Street,
London EC2V 7AE
0207 626 - 1500

Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.



Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."

Actionable trading levels delivered to YOUR charts in real-time.

Register To Test Your Amazing Trader

GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium

Mon 10 Sep 2018
AA 08:30 GB- GDP, Trade, Output
Tue 11 Sep 2018
AA 08:30 GB- Employment Decision
A 09:00 DE- ZEW Survey
Wed 12 Sep 2018
A 12:30 US- PPI
A 14:30 US- EIA Crude
A 18:00 US- Beige Book
Thu 13 Sep 2018
A 1:30 AU- Employment
AA 11:00 GB- Bank of England Decision
AA 11:45 EZ- European Central Bank Decision
A 12:30 US- Weekly Jobless
AA 12:30 US- CPI
Fri 14 Sep 2018
A 08:30 GB- GDP
AA 12:30 US- Retail Sales
A 13:15 US- Industrial Production
AA 14:00 US- prelim University of Michigan

John M. Bland, MBA
co-founding Partner,

Global-View Affiliate Program

We are starting an affiliate program to market some of our products.

Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.

Put the word "affiliate" in the email subject line.

Contact us

Start trading with forex broker Markets Cube

Max McKegg's Daily Forex Trading Forecasts

Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.

Request a TRIAL of Max's Forex Service.


Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map

Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.



By using this website, you are agreeing to our Privacy Policy and Terms of Use, and Cookie Policy

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105