Monday, March 9, 2009

Rate cut for what? BOE!?!?

The BOE, reported on this blog and all over, cut rates last week to .50%. However, the BOE put out a report that states that coins and notes in circulation increased.

Seasonally adjusted, notes and coin outstanding in February were, on average, 1.0 % higher than in January. The twelvemonth growth rate increased to 8.3% from 7.8% in January.

Report, Narrow Money (Notes & Coin) and Reserve Balances
February 2009

Is the BOE just winging it?

Looks like...hyper-inflation, on the way!

I guess the BOE, is planning to tax that increase in purchases down the line, re-adjusted to inflation, and hike rates from their historic lows.

Will this sit well with the ECB...who cares!?!?! The UK has no plans on joining the Eurozone.

But, issues will arise in regards to competition and market penetration. Because, if goods will be taxed in the future and, the UK has an advantage in low rates now, their purchasing power, will be increased. In the same token, higher taxes on import goods--which will be the assumption moving forward--will put Euro exports at risk, at least!

The last pre-budget report, analyzed on this blog, read that the assumption is based on global demand increasing in the long future--by the end of this year. This certainly factors in European competitors. Germany, France and Poland, should be concerned.

Also, taxes have not been dramatically decreased--VAT went down in the BOE pre-budget by only 2% (15% from 17%, if my memory serves me correctly) and, it is up until 2010. 2010 seems like a long way, but the BOE gave itself some rope with lowering the rates. But, money is already growing in circulation, MO, out of the BOE vault.

So, savings--by virtue of the hard currency circulation outside of the BOE-- are up as well as the assumption that bank's having money in their tills. Folks have money, or, at least access to money from their finance institutions. At least, at the face of it.

This is a gamble, based on assumptions on the global economic rebound--but, borders right on the hinge of economic pricing disaster.
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