User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday May 19, 2008 - 10:47:37 GMT
Lloyds TSB Financial Markets -

Share This Story:
| | Email

Economics Weekly - Is inflation the main risk to economic growth? Weekly economic data preview - Minutes of BoE and US Fed interest rate setting meetings feature

Economics Weekly W/c 19 May 2008

Is inflation the main risk to economic growth?

Bank of England warns, people listen but inflation over the next two years is now largely out of its control...
Sometimes it takes the central bank to speak in order to get people to take notice of events that others might also have spotted but the majority have missed. So it was with the latest Quarterly Inflation Report (QIR) from the Bank of England. A few observers had been warning that the main risk facing the economy was not the credit crunch, important though that is, but rising price inflation. This reasoning was based on a view that the credit crisis had mainly hit the developed markets and within them those with firms that had been most heavily involved in securitised products. But outside of these firms - the credit derivatives part of the financial markets and those closely related to it, including the housing market - other sectors were not doing too badly.

Importantly looking ahead, global growth is not being driven by developed economies but the populous emerging market giants of India, China, Brazil and Russia and a range of other emerging economies. The take off in their growth rates in the last decade, and the resultant demand for the metals and energy necessary to fuel that expansion and the effects of rising living standards on the demand for food, means that a range of commodity prices are rising sharply and likely to remain high for the foreseeable future. Further, instead of responding to this crisis by opening markets and allowing freer trade in these goods so that supply increases and price inflation eventually fall back, the tendency seem to be to protect markets, which would drive up prices as shortages arise.

...does this make the inflation risk greater than the risk from the credit crisis?
So although economic growth will slow in the developed countries and some economies could perhaps go into or skirt recession, like the US and UK, the main risk may not be from the credit crisis but from cutting interest rates too deeply to try and prevent the slowdown. This would risk embedding inflation into the economy in the same manner that occurred in the 1970s after the first oil price shock, and which persisted for about 25 years before being brought back under control from around the mid 1990s, see chart a. Hence, as MPC Governor Mervyn King said, a slowdown is necessary to bring inflation back to the 2% target in the medium term and “monetary policy cannot, and should not try to, prevent that adjustment”. This analysis is not to downplay the effects of the credit crisis, since the widening of spreads and the continued high level of LIBOR will weaken economic growth by more than otherwise would be the case, but it does not have the same potential to derail global growth for decades to come as does the risk of letting inflation run out of control.

Inflation rise shocks, as Bank of England warns it could remain above target until 2010
In the latest QIR, the Bank sets out the fact that despite weakening growth, it could not cut interest rates because of the risk of raising inflation further. It also accepted that inflation would remain above its 2% target for perhaps two years, and above 3% for over a year. Indeed, the Governor of the Bank of England suggested that he would have to write several letters to the Chancellor, as inflation would be at 3.1% or above for several months and that triggers an open letter explaining why it happened, what he is doing about it and when it would get back to target. In a sense, the comments at the press conference after the release of the QIR were a dress rehearsal of the contents that will be in such a letter. Since he also said that it was too late to try to get inflation back quickly to target, as the costs in terms of lost output at a time of weakening growth could not be not justified, this means that base rates will not be raised despite high inflation. Hence, the likelihood is that several letters will need to be written On our monthly forecast, see chart b , the UK’s annual consumer price inflation will remain above 3% until early 2009, after rising to 3.1% possibly as soon as May 2008, and remain above 2% throughout most of next year.

UK Inflation driven by overseas factors but also by domestic growth...
But the key lesson is perhaps to not pay too much attention to the point estimates in the QIR, it did not foresee the surge in price inflation in March and its forecast always has inflation falling back to target in two years’ time (see charts c and d), but to focus on the medium term pressures that are driving global inflation trends. These suggest that the risk is of a rise in interest rates, not a cut. If, for instance, the Bank of England is wrong about the downside risks and growth is not as weak as they are assuming, does that mean that inflation rises further above 4% and remains above the 2% target for even longer? And, if this is the case, does this change the risk profile to a rise rather than a cut in base rates next year? is there still a risk of a rate rise?
A key danger often overlooked is that economic growth turns out to be stronger than expected and inflation moves higher, requiring a rise in base rates to make sure that growth is weak enough to partially offset the rise in inflation from global growth pressures. Further, one reason too often ignored is that UK price inflation is not solely driven by overseas factors, but from domestic demand as well. Growth has been stronger than the capacity of the UK economy to meet it from home-produced goods for many years and this has turned up in a widening trade and current account deficit. But a fall in the currency, as a result of this trend, now means that imported price inflation is being given a push up by a 13% fall in the trade-weighted index in the past year (equivalent to a cut in rates of about 3-4% according to one MPC member).

Trevor Williams, Chief Economist, LTSB Corporate Markets

Weekly economic data preview W/c 19 May 2008

Minutes of BoE and US Fed interest rate setting meetings feature

UK data in the week ahead may indicate that the economy is currently in better health than is assumed, although this is unlikely to significantly lift pessimistic perceptions about future economic performance. As far as the data is concerned, we think there is a risk of an upward revision in Q1 GDP to 0.5% from 0.4%, M4 money supply growth of 12% in April and retail sales growth above 4% on an annual basis. In addition, the minutes of the 7-8 May interest rate setting meeting are published on Wednesday - we expect an 8-1 vote for no change, with David Blanchflower the single dissenter. The vote is likely to have been heavily influenced by the MPC's access to the April CPI growth figure of 3% and producer price growth of 7.5%, which would also have also wiped out the possibility of another 0.25% cut in bank rates next month. May's key German ZEW survey of economic sentiment and the IFO survey of the business climate will be keenly assessed for clues that economic performance could surprise to the upside in Q2 as was the case in Q1. In addition, minutes of the US Fed's interest rate setting meetings will show the extent of support for reducing interest rates by 0.25% to 2% at the last meeting and the likelihood of more rate cuts to come. The BoJ is expected to again hold interest rates at 0.5% on Tuesday, despite surprisingly strong Q1 GDP growth and accelerating CPI inflation.

UK inflation data featured heavily last week, while the focus of data this week is more on growth. Whereas April's forecast M4 money supply growth rate of around 12% is below last May's peak of 14%, it is more than double the nominal GDP growth rate of around 5%, supporting economic growth as well as presenting a risk to inflation. M4 sterling lending may also have held up well at £16.8bn in April, compared with £17.4bn in March. Public finance data for April, the start of the fiscal year, is published at the same time. April BRC survey like-for-like sales were weak, suggesting that there may be a second consecutive monthly decline in the level of official sales compared with March. But on an annual basis, retail sales growth is robust at 4%, well above the long-term average of just over 3%, driven partly by strong expansion of mail order and internet-only sales. The CBI industrial trends survey may show an improvement in sentiment in April, buoyed by exports, although the net confidence balance is likely to remain in negative territory. Finally, on Friday, the second estimate of Q1 GDP may be revised up from 0.4% to 0.5% growth on the quarter, with the details of the report, highlighting the contribution made from consumer expenditure, investment spending, government expenditure and net trade.

• The US Fed publishes the minutes of its 29/30 April FOMC meeting on Wednesday evening, which will inform on the extent of support for the 0.25% cut to 2% in Fed fund's rate and give clues as the potential level of support for another cut next month. This week's data is likely to highlight the central bank's dilemma - April headline and core producer prices are expected to rise strongly, by 6.9% and 2.9%, respectively, while existing home sales levels may weaken below the January low of 4.89m. The positive housing starts and buildings data for April published last Friday, may increase the possibility of a surprise rise, which may be interpreted as a sign that the Fed is more likely leave rates unchanged at 2% rather than make further cuts.

• Eurozone data may support the view that the economy is proving more resilient than expected to the strain of the loss of price competitiveness from the strong euro and tighter credit markets. The two key German surveys, the ZEW and the IFO surveys will provide useful insight into the likelihood that firm economic growth was or was not sustained into Q2. Other key data include flash May manufacturing and services PMIs - we expect both to show survey levels above 50 indicating expansion.

Nichola James, Senior Economist, LTSB Corporate Markets

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

Tue 17 July 2018
AA 08:30 GB- Employment
A 13:15 US- Industrial Production
AA 14:00 US-Powell Testimony
Wed 18 July 2018
AA 08:30 GB- CPI
A 12:30 US- Housing Starts/Permits
AA 14:00 US-Powell Testimony
Thu 19 July 2018
AA 1:30 AU- Employment
AA 08:30 GB- Retail Sales
A 14:30 US- EIA Crude
A 12:30 US- Weekly Jobless
Fri 20 Jun 2018
A 12:30 CA- CPI/Retail Sales

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