User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday July 4, 2005 - 10:12:10 GMT
Lloyds TSB Financial Markets - www.lloydstsb.com/corporatemarkets

Share This Story:
| | Email

UK economic data revision make interest rate cuts likely

Economics Weekly: Economic Research and Analysis

UK economic data revision make interest rate cuts likely

Data revisions make interest rate cuts likely
Revisions to the UK economy going back 8 years show that it is bigger in cash terms than earlier estimated. However, the revisions also show that growth has been significantly weaker in the last three quarters than previously thought. Growth in Q1 2005 is now put at just 0.4%, down from the first estimate of 0.6%. This increases the chances of a cut in interest rates by the Monetary Policy Committee (MPC) this year, perhaps starting at this week’s July meeting. These figures, which are likely to have been seen early by the MPC, may have been what prompted the surprise decision of Charles Bean, the chief economist at the Bank of England, to vote for a rate cut at the June MPC meeting. If so, do these data revision now make a rate cut a done deal?

Forecasts have to change...
Estimates of economic growth in 2002, 2003 and the first quarter of 2004 have been raised, but growth in the rest of 2004 and first quarter 2005 have been lowered, see chart A. This has altered the pattern of growth while leaving the economy £1bn bigger than previously estimated in cash terms and £10bn in terms of constant 2002 prices. The facts show that growth in 2003 is now put at 2.5% rather than 2.2% and growth in 2004 is now estimated at 3.2% rather than 3.1%. The Treasury forecast of 3 to 3.5% UK economic growth for 2005 will have to be trimmed back significantly - the equivalent range would be 2.5% to 3%. Bur even this is no longer achievable with just 2.1% annual growth in Q1. Our forecast of 2.6% for 2005 now translates arithmetically into 2.1% based on the new data.

Pattern of economic growth has been altered
In terms of sectors of the economy, services output has been revised lower over the past year, manufacturing output has been much less changed. In terms of expenditure, consumer spending has been revised down, and grew by just 0.1% in Q1 rather than the earlier estimate of 0.3%. But chart B shows that consumer spending has been revised up overall, and even with the Q1 revision to just 0.1% growth it was still 2.6% higher than in Q1 2004 rather than the earlier estimate of 2%. The corollary of this has been that the household saving ratio has been revised lower, see chart C, as real income growth has been revised lower as well. However, real income growth was strong at 1.2% in the first quarter of this year, meaning that saving rates rose strongly in that quarter as people decided to spend less. But the household savings rate was revised down from 5.6% to average 4.2% in 2004, the lowest in 40 years. Does the MPC want people to save so little of their income, which is what an interest rate cut now would so imply? Moreover, with bankruptcies rising a cut in rates might be a two-edged instrument, helping some people meet interest payments on debt but encouraging others to borrow even more. Business investment spending has also been revised lower, see chart D, to 3.4% in 2004 from 5.5% previously. In Q1, it is now estimated to have risen by 0.1% rather than fallen, but the annual rate was put at 2.5%
rather than the earlier 2.9%. This makes it harder to see this sector growing by enough this year to compensate for the slowdown in consumer spending, though profits and liquidity suggest that it could. Government spending remains robust, up 0.7% in Q1, but it too has been revised lower, to 1.5% up on the year before rather than 3.4%.

Economy has less spare capacity now so...
The fact that growth has been weaker than thought recently means that it is now much more likely that there will be a cut in interest rates. This poses a problem for the MPC because although weaker growth suggests lower interest rates, a bigger economy suggests that there is less spare capacity, so less ability to grow without accelerating inflation. Our estimate of the output gap (actual output in sterling terms relative to potential expressed as a percentage) based on the latest data, depicted in chart E, shows that the economy has indeed got a positive output gap, though it is getting smaller due to below trend growth in the last few quarters. This means that inflation may still remain around 2% in the Bank of England’s inflation profile, which suggests that the MPC may rather wait until August too see the report than cut in July.

... interest rate cuts need not be aggressive
However, the real surprise in the chart is shown by the fact that the link with inflation since the 1960s seems
to have broken down in the late 1990s. No longer, it seems, does above trend growth, or a positive output gap, automatically lead to higher price inflation. This may make it even easier to justify a rate cut, but the instinct of the central bank might be a reluctance to cut rates when the economy has a positive output gap. Going forward, however, matters too and it is clear that UK economic growth in 2005 will be much less than earlier estimates based on these revisions, by up to ½%. That implies interest rates over 12-months could also be ½% lower. We have remained cautious, given signs that the housing market is recovering and price inflation could go above 2%, but have now changed our interest rate forecast from a hold to a cut of ¼%,
most likely at the August meeting. A further cut in 2006 is possible depending on how the economy performs. The MPC has been successful in slowing the economy with the increases in interest rates since the low in 2003, is it now time to reverse some of that but not too much so as not to encourage too much household debt accumulation?

UK economic indicators
Data this week in the UK will show that slow growth in M0 is in line with slow retail sales activity. The services PMI, on Tuesday, is likely to rise, reflecting better conditions in the financial markets. But industrial production on Wednesday should a fall for May, in line with the weaker PMI that month. Interest rates are likely to stay on hold in July even though the data revisions have raised the odds – the August meeting seems more likely to see a cut in rates because the Inflation Report will be available to the MPC though not yet published. House price data due in the week may show a small rise, if it follows the recent pattern of down one month up the next.

Trevor Williams, Chief Economist
trevor.williams@lloydstsb.co.uk
www.lloydstsbfinancialmarkets.com
Lloyds TSB Bank,
Financial Markets
Division,
Faryners House,
25 Monument,
London EC3R 8BQ
Switchboard:
0207 283 - 1000

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."



Elevate Your Trading With The Amazing Trader!

The Amazing Trader includes:
  • Actionable trading levels delivered to YOUR charts in real-time.
  • Live trading strategy sessions.
  • Market Updates with Trading Tools.

Register To Test Your Amazing Trader


Trading Ideas for 23 October 2017

Register for the Amazing Trader

1.

Amazing Trader EVENT RISK Calendar:

Tue 24 Oct
All Day flash PMIs
Wed 25 Oct
01:30 AU- CPI
08:00 DE- IFO Survey
08:30 GB- GDP
14:00 CA- BOC Decision
14:30 US- EIA Crude
Thu 26 Oct
11:45 EZ- ECB Decision
12:30 US- Weekly Jobless
14:00 US- Pending Homes Sales
Fri 27 Oct
12:30 US- GDP
14:00 US- final Univ of Michigan

Forex Trading Outlook


Potential Trading Opportunities


  • POTENTIAL PRICE RISK: Medium Tue-- All Day Global flash PMIs. First good look at October economic performances.



  • POTENTIAL PRICE RISK: HIGH Wed-- 01:30 GMT AU- CPI. Top Inflation indicator.

  • POTENTIAL PRICE RISK: HIGH Wed-- 08:00 GMT DE- IFO Survey. Top German indicator.


  • POTENTIAL PRICE RISK: HIGH Wed-- 14:00 GMT CA- BOC Decision. No Policy Change Expected.


  • POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top Weekly WTI Statistic.



John M. Bland, MBA
co-founding Partner, Global-View.com

EXCLUSIVE: Global-View Daily Trading Chart Points Updated

EXCLUSIVE: Global-View Free Forex Database updated




TRADER ADVOCACY ARTICLES

Trader's Advocate Articles..

pic

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 Global-View.com.

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

Global-View.com 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 Global-View.com. 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.

 

WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.

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