With the second largest economy in Europe already suffering from a stalled economy in the second quarter, a steep housing recession, overleveraged consumer credit, the recent financial crisis is added a new dynamic to consider. The quick deterioration in lending and investing has threatened to accelerate the economy’s descent into a crippling recession; and the market has in turn raised its expectations for the central bank to respond with relieving rate cuts. However, MPC member Andrew Sentance warned today investors and other BoE officials to avoid ‘overreacting’ to the financial crisis. In a speech today, the policy maker said central bank should focus on its inflation mandate as inflation is still at a decade high and the market turmoil would pass. However, the rest of his speech was hardly reassuring. Though Sentance expected a gradual recovery in the economy through 2009, he predicted “the economy could start to contract in the second half of this year or early in 2009.” Elsewhere in the market, the CBI Distributive Trades Report (essentially a retail sales indicator) dropped to its lowest levels since records began back in 1983. Considering policy officials have said they are paying less attention to the volatile government sales figures, this reading comes with considerable weight. With current sales, expected sales and orders all tumbling, a UK recession looks like a very strong probability.
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British Pound Holds Steady Despite Weak Sales And Talk Of An Impending Recession
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