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The UK may cut the interest rate after negative quarter

Tue, Oct 7 2008, 13:55 GMT
by Benny Menashe

Finotec Group Inc.

The Bank of England might cut the key interest rate by a half point to 4.5 percent this week after U.K. business confidence had an ``alarming'' drop in the past quarter, the British Chambers of Commerce said. Business confidence, based on a survey of almost 5,100 companies, fell to the lowest since the data began in 1989, the London-based lobby group said today. Indexes measuring sales in services and manufacturing, making up 90 percent of the economy, showed contraction at a faster pace than in the second quarter. ``From the point of view of the authorities, this is potentially an emergency,'' David Kern, economic adviser to the BCC, told reporters yesterday. ``In normal times you don't ask the Bank of England to cut rates when inflation is so high. But the risks of recession are bigger and more immediate.'' The GBP/USD is currently trading at $1.7520 as of 7:40am, GMT.

The yen fell from a three-year high against the euro after the Reserve Bank of Australia lowered interest rates to 6.00% from 7.00%, fueling speculation central banks plan a flurry of cuts to ease a financial crisis. Australian policy makers slashed borrowing costs by a full percentage point, double the reduction forecast by economists. Asian stocks and the Australian dollar pared losses as investors bet declines in benchmark interest rates will revive confidence in higher-yielding assets. ``The yen is being sold on signs that policy makers can relieve the stress we've seen in credit markets,'' said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly listed lender. ``The size of the RBA's cut is enough to suggest that central banks may coordinate their monetary easing.'' The USD/JPY is currently trading at 102.80 as of 7:49am, GMT.

Bernanke is scheduled to speak on the economic outlook from 12:30 p.m. in Washington today. He and Paulson meet with European Central Bank President Jean-Claude Trichet and their other Group of Seven major-nation counterparts Oct. 10 in Washington. The Fed yesterday said it will double its cash auctions to as much as $900 billion. In a statement, the Fed said it and the Treasury ``are consulting with market participants on ways to provide additional support for term unsecured funding markets.'' The EUR/USD is currently trading at $1.3570 as of 9:05am, GMT.

Published on  Tue, Oct 7 2008, 14:06 GMT