fundamental alert

British Pound: Banking Consolidations Not Contained To the US, UK Retail Sales Likely to Drop

Wednesday, 17 September 2008 22:47:33 GMT  |  Terri Belkas, Currency Strategist

The US is not alone in experiencing massive banking consolidations, such as the sale of Merrill Lynch to Bank of America, as UK bank Lloyds TSB will reportedly acquire HBOS, which is the nation's biggest mortgage lender.

Indeed, after the nationalization of Northern Rock earlier in the year, the UK government is surely looking to avoid having to take such measures once again. Meanwhile, the minutes from the Bank of England’s September meeting revealed an 8-1 vote in favor of leaving rates steady, with one dissent in favor of 50bp cut. With UK CPI well above the BOE’s 2 percent target and 3 percent ceiling, the central bank really has limited room to consider cutting rates despite obvious signs of a sharp economic slowdown in the country. Furthermore, since CPI has held above the 3 percent ceiling for 3 months, BOE Governor Mervyn King had to pen yet another letter to Chancellor of the Exchequer Alistair Darling explaining the inflation situation. In it, Mr. King suggested that the BOE would leave rates unchanged at 5.00 percent, and allow the economic slowdown to bring inflation pressures down on their own. However, given the significant turmoil in the financial markets, it remains to be seen how long they will maintain this stance.

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