How much will BRR reduce this week if indeed at all? 02.03.2009

Author: David Whittaker Posted on: 02 March 2009

There is always speculation about any impending announcement on BBR and normally a concenus emerges from which the market predicts the quantum of any change.

However this month there are two different schools of thought - no change or keep cutting (even down to 0%). The former believe that interest rates as a tool to stimulate the economy can do no more and anyway it takes time to feel the benefit of earlier cuts so now endorse the use of quantative easing (Printing money or thereabouts) - this is the RBOS view with BBR set at 1% for the next 7 quarters ie to the end of 2010. The latter group see continuing reductions as well as other mechanisms - HSBC are predicting a 0.5% cut and there are still some that see rates still heading down to 0% in the early summer and staying there for 12 months !!!

What really stands out is that no-one actually knows what Thursday will bring - and this reflects the economy at large both here in the UK but also globally where our export markets, whilst benefitting from exchange rate changes, find that businesses and consumers are holding back from major capital expenditure.

Let's hope that any announcement on Thursday is accompanied by some statement of direction or intent upon which the market will gain some confidence because the LIBOR/BBR mismatch is still over 1% - that cannot be sustained for much longer.

Author: David Whittaker