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Economics Weekly - Focus on BoE interest rate meeting and US Fed minutes
Economics Weekly - 6 April 2009
Focus on BoE interest rate meeting and US Fed minutes
With the G20 meeting and the ECBâ€™s interest rate decision out the way, this weekâ€™s focus is on the BoEâ€™s MPC meeting, on Thursday, and the minutes of the Fedâ€™s 17/18 March meeting, published Wednesday. The G20 concluded with agreement to add another $1.1tn of cash to support the IMF in stabilising the world economy. But the ECB surprisingly delayed a full 0.5% interest cut, opting instead for a 0.25% reduction to 1.25% (another 0.25% cut is likely at the May meeting) and postponing buying of corporate bonds. This week, we will find out if the BoE plans to take further action on the banking crisis and the economy. But with official interest rates already just 0.5%, there is unlikely to be any change. Furthermore, we may have to wait for the minutes of the meeting published on 22nd April to find out initial progress on the Â£75bn Asset Purchase Programme and for any information to suggest whether or not the full Â£150bn of purchases will be required. In the US, the Fed FOMC minutes may inform on the debate around its unanimous decision to buy up to $300bn long-term treasuries and to expand purchases of mortgage and agency backed securities. The BoJ and the central bank of Australia meet, and are both expected to hold interest rates at 0.1% and 3.25% respectively. UK and US financial markets are closed on Good Friday,
ô€‚„ Recent business surveys show that manufacturing output continues to fall, but at a slower pace, and this trend may be confirmed in Februaryâ€™s monthly official industrial production figures. Producer input price data for March are also published. They may add to business concerns, as raw material price inflation may have accelerated in March, at the same time as weak market conditions may have kept factory gate inflation very low. This combination of falling output and slowing price growth, but faster cost growth, will maintain pressure on firms to cut jobs, and this will present a downward drag on output in Q2. Also published, the March NIESR 3-month rolling GDP estimate (a lead indicator for official GDP) will complete the Q1 data series. It is likely to show the recession deepening in Q1. The UKâ€™s external trade deficit may have narrowed slightly to Â£7.6bn in February from Â£7.7bn in January, due to a Â£100m improvement in the non-EU deficit.
ô€‚„ US net consumer credit may have declined by $3bn in February, highlighting that credit conditions are still very tight and consumer confidence is weak. Part of the problem lies with the fact that banks are still saddled with â€˜toxic loansâ€™, as the US Treasuryâ€™s public-private partnership plan to deal with them will not bring a quick solution to the lack of credit availability. In the meantime, the 6-month average job loss figure is around 620,000, bringing to 5m the total number of jobs lost since the start of the recession, exacerbating economic decline. Other key US data include the February trade deficit, which may be close to the previous monthâ€™s figure of $36bn and the March Treasury deficit which may increase sharply to $160bn in March, possibly related to the fiscal stimulus plan.
ô€‚„ Weak eurozone economic data suggest that the ECB will implement some form of quantitative easing at next monthâ€™s meeting, as hinted at by President Trichet last week. This week, we expect to see further falls in EU-16 retail sales in February, highlighting that consumer spending is continuing to fall. Other insightful publications include German factory orders and industrial output, which will remain very weak, as intra- and extra- EU trade has collapsed. Final publication of EU-16 Q4 GDP should confirm that output contracted by 1.5% on the quarter and will include household and corporate sector balance sheets.
Nichola James, Senior Economist, Corporate Markets
Economic Research,10 Gresham Street,
Lloyds TSB Corporate
London EC2V 7AE,
0207 626 - 1500
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