Central Banker Says UK is Heading into Recession
By Reuters 21 Jul 2008 04:08 AM ET
The British economy is heading into recession and interest rates should fall to "well below" their current 5 percent, Bank of England policy-maker David Blanchflower was quoted as saying in a newspaper interview.
The arch-dove was quoted as saying in Monday's edition of the Guardian newspaper that the economy would probably shrink for as much as a year and policy-makers had to act now to bring down borrowing costs.
The Bank of England has held interest rates at 5 percent for the last three months after cutting them in April despite signs of a sharply slowing economy because inflation has nearly doubled the central bank's 2 percent target.
Blanchflower was the lone voice calling for a cut in interest rates in May and June.
Minutes of this month's meeting will be published on Wednesday, but Blanchflower looks sure to have repeated his call for lower rates.
"I think we are going into recession and we are probably in one right now," Blanchflower told the Guardian.
"We will probably have three or four quarters of negative growth, but the risks are to the downside. It's not too late to stop it, but we have to act right now. Monetary policy has been far too tight for too long. We can't just sit and do nothing as we have done for too long."
Blanchflower, an academic economist who lives in the United States, told the newspaper that the British economy could be in for a worse ride than even the American economy.
Both countries, he said, were facing the "biggest economic problem since the Great Depression."
He added that "the U.S. has had a big stimulus, but the UK has had none. So the same things that have been happening in the U.S. will happen in the UK, but they could well be worse."
Blanchflower has said house prices in Britain could fall by as much as third.
The recent rises in unemployment, he told the newspaper, were just the "tip of the iceberg" as job losses in house building combined with the financial sector and retail.
He said that the Monetary Policy Committee had to consider the medium-term price outlook and that inflation -- which hit a series-high of 3.8 percent in June -- could fall sharply.
"Our job is to focus on inflation in the medium-term so we have to look through the short-term shock from oil and commodity prices," Blanchflower was quoted as saying.
"The economy is now slowing so fast that we run the risk of writing a letter on the low side in the medium-term."
Under the BoE's remit, the governor has to write an explanatory letter to the government when inflation deviates from the 2 percent target by more than a percentage point.
Governor Mervyn King had to write such a letter for only the second time last month when the May inflation data showed a jump to 3.3 percent.
Average home asking price down £4,000 on a year ago
The Times
Homeowners are resorting to increasingly aggressive price cuts in an effort to sell their properties, with asking prices across England and Wales an average £4,000 less than they were a year ago as a new realism sets in across the housing market.
The average price is now £235,219, 2 per cent less than last July, according to the Rightmove website.
The gloomiest sellers — in the East Midlands — are asking £11,011 less than a year ago, a drop of 6 per cent, while those in the North and the West Midlands have reduced asking prices by £7,906 (4.9 per cent) and £9,609 (4.8 per cent), respectively.
Asking prices have fluctuated in the past year as sellers have struggled to come to terms with the end of a decade-long housing boom, but Rightmove, which publishes a monthly survey of the homes it lists for sale, has recorded the first annual fall in prices since the survey began six years ago.
It also shows a dip in recent weeks. The value of flats has been hit hardest in the past month, down 4 per cent, while semi-detached and terraced homes are 3.7 and 3.1 per cent lower. Detached homes are holding relatively steady, at 1.8 per cent lower than last month.
The survey reflects owners’ aspirations rather than the sale price of homes, but separate research by Hometrack, the property data company, has suggested that buyers are paying on average 91.6 per cent of the asking price. A year ago they paid 95.1 per cent.
Miles Shipside, Rightmove’s commercial director, said: “Sellers are finally recognising that they need to undercut rivals from the outset, rather than testing the market and dropping prices later. It could be a lot better outcome to price aggressively and sell now, rather than accept a bigger reduction later as prices continue to fall.”
Agents at the top end of the market have reported that the decline has spread to prime properties in Central London. However, Rightmove says London sellers are continuing to hold out and that asking prices of homes in the capital appear to have edged up 0.3 per cent in the four weeks to July 12. Mr Shipside said: “Sellers still seem to be disregarding the brutal fact that potential buyers’ sentiment and affordability has taken a severe knock.”
Economy Likely to Weaken Further: Conference Board
By Reuters 21 Jul 2008 10:12 AM ET
The index of leading U.S. economic indicators slipped 0.1 percent in June, showing that the limping economy is still far from being on the mend, the Conference Board reported.
It "wouldn't take much to push the economy so that it's even weaker in the second half of 2008," said Ken Goldstein, labor economist at the private research group, in a statement.
Goldstein attributed the drop to a "deep financial crisis, a prolonged, intense slump in housing, high gasoline and food prices, weak consumer confidence and a weak dollar."
The index's reading for May was revised to show a 0.2 percent drop, initially reported as a 0.1 percent rise.
Economists polled by Reuters ahead of the report had anticipated that June's index would fall 0.1 percent.
On Friday, a survey by Reuters and University of Michigan showed that Americans, unnerved by a worsening job market and sky-high oil prices, plan to pay off debt and boost savings in preparation for expected further economic turmoil.
Half of U.S. consumers polled said they plan to speed up reducing their debt and a third said they plan to save more in the year ahead, according to the survey, which will be released this week.
"Most of the planned declines in debt and increases in savings are intended as a precautionary measure in the face of a deepening economic downturn," Richard Curtin, director of Reuters/University of Michigan Surveys of Consumers, said in a statement on Friday ahead of Tuesday's release of the poll.
The Reuters/University of Michigan's widely followed U.S. consumer sentiment index has fallen sharply this year, as the economy slows and oil prices hit record highs.
A week ago, it said the index turned up slightly in early July after hitting a 28-year low in June.
Wall Street Mergers on the Way?
There have been nascent signs of the intended debt and saving moves by gloomy consumers.
The government's measure of aggregate U.S. savings jumped to 5.0 percent in May, the biggest since March 1995, while the Federal Reserve's gauge of household indebtedness versus income slipped to 14.13 percent in the first quarter, the lowest in two years.
While much of the recent debt reduction was voluntary, Curtin said a sizable portion stemmed from difficulties in obtaining loans or a growing perception that banks are reluctant to extend credit.
Moreover, the higher saving goal could be thwarted if energy and food prices continue to rise and companies shed more jobs as business conditions deteriorate, according to Curtin.
For the broader economy, debt reduction and savings increases by consumers, who account for more than two-thirds of the U.S. economy, will coincide with a deepening economic downturn in the second half of 2008 and early 2009, he said.
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