Oil prices ended the week at over $139 a barrel following a two-day rise of over $16. Whilst some analysts are saying the increase is merely due to speculation and prices will soon fall, the majority of commentators do not believe this to be the case. In fact the cost of oil looks likely to pass the $150 a barrel marker over the next month and could go all the way to $200 a barrel over the coming months.

The news has sparked concerns that although the economy is slowing, increasing inflationary pressures on oil, fuel and food look set to drive interest rates higher. Whilst the UK kept rates on hold, the European Central Bank has given a strong hint that it will push up rates. All in all it is not a good time for the economy and the consumer.

The Bank of England (BoE) has today cut interest rates by o.25% to 5%, the third 25 basis point cut since December 2007. The move comes as the Bank looks to mitigate the impact of the credit crunch and the slowndown in the property sector.

Many of the big lenders have already stated that they will pass on the rate cut in full by reducing their standard variable rates (SVR). Whilst this is great news for those with mortgages linked to the SVR or the Bank of England base rate, it does not paint the full picture. (more…)

Lehman Brothers has issued a report that states the UK faces a one in three chance of going in to recession during the next two years. Global financial issues caused by the credit crunch, higher mortgage rates and reduced availablility of mortgage deals will finally lead to a slowdown in consumer spending. Adding up all these factors means the prospect of a recession won’t go away. (more…)

The Office of National Statistics (ONS) has released figures that show retail sales rose by 1% from January and by 5.5% from this time last year. The unexpected increase was attributable to higher food sales during the month.

The figures support the Bank of England’s (BoE) decision to keep interest rates on hold and that the threat of rising inflation is not going away. It also raises the question as to whether the man on the street is concerned about the credit crunch or whether it’s merely something that the boys and girls in The City get excited about.

The Bank of England’s Monetary Policy Committee (MPC) has kept rates on hold at 5.25%. The decision was widely expected by analysts who are predicting a further rate cut in May and possibly another cut later in the year.

Keeping rates at 5.25% could well have been a close call by the Committee as they had a real mixed bag of data and performance indicators to work with. House prices and mortgage approvals continue to slow, whilst price increases on food and fuel remain high. The balancing act has resulted in a ‘wait and see’ approach and so that’s what we’ll need to do.

Kate Barker, a member of the Bank of England’s Monetary Policy Committee, warned that the greatest pressures on the economy stemmed from falling housing prices and a reduction in mortgage approvals. Adding that the Bank could not stop the impact of these pressures in the short term.

 There is a concern that the credit crunch goes deeper than the BoE predicts, leading to the realisation of these concerns but would send some households into negative equity. If this were to happen, people’s willingness to spend would diminish leading to a slowdown across the economy.

The Bank must surely now act quickly and cutt interest rates again in March to head off such outcomes as best as possible.

The Bank of England’s Monetary Policy Committee (MPC) voted in favour of the 0.25% rate cut in February by 8-1. The majority vote supports the view that the Bank deems the credit crunch and slowing housing market to carry greater weight than the inflationary pressures caused by higher food and fuel prices.

Commentators believed that the prospect of future rate cuts were diminishing but this latest report and level of majority suggests that a further two or three 0.25% cuts in the near future could be possible.