ECB cuts main interest rate

The European Central Bank has cut the main European base rate to an all time low of just 1%, down from 1.5%.

The rate is down 3.25% in total since October 2008.

The marginal lending rate has also been lowered to 1.75% while the deposit rate - what the central bank pays commercial banks that deposit money with it overnight - remains unchanged at 0.25%.

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Extra £50bn for UK economy as BoE keeps rates at 0.5%

The Bank of England has held the current UK base rate at 0.5% and announced plans to inject an additional £50bn into the economy.

Having already spent £54bn the UK government will spend £75bn by June and the latest announcement will take the total to £125bn.

This despite the Treasury said the bank can spend up to £150bn via quantitative easing.

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Deflation hits Japan again

The Japanese economy has fallen back into deflation for the first time in 12 months.

March figures for the economy as a whole do not make good reading, with the unemployment rate hitting a four year high at 4.8% and a forecast of a 3.1% contraction in GDP to March 2010.

Despite a 1.6% rise in production, the Japanese government has also warned that consumer prices will fall by 1.5%, pushing the country into deflation.

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Federal Reserve holds US interest rate

The US Federal Reserve has kept interest rates at the current range of 0-0.25% and will continue to purchase long-term government debt to expand money supply.

The Fed also suggested that the recession may be easing, as while the economy was still contracting, the rate of contraction was slowing.

This comes on the same day as the Polish government also decided to hold their base rate at the current level of 3.75%.

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Mortgage lending falls as Nationwide abandons promise

Mortgage approvals fell for the first time in four months in March, with only 26,097, down 6.8% on February and 25% on the same month last year. (Source: British Bankers’ Association)

This comes on the same day that the Nationwide has pulled its mortgage promise that their variable rate home loan, called BMR, will be no more than 2% above the Bank rate for new customers. Existing customers retain this, however.

The news will be a blow to recent growing confidence that the housing market may be showing signs of recovery.

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The 2009 Budget Highlights

Inflation

Headline inflation expected to drop to -3% by September but then predicted to return to zero next year.

Inflation target remains 2%.

Employment

An additional £1.7bn of funding to help job seekers, with additional support for those out of work for more than 12 months.

Training to be offered to everyone under the age of 25 who has been jobless for 12 months, with money on top of benefits for those in training.

Statutory redundancy pay up from £350 to £380 a week.

Government Debt

Public sector net borrowing predicted to be £175bn this year, 12.4% of GDP.

From 2010, PSNB predicted to fall to £173bn, then £140bn then £118bn and down to £97bn.

Economy expected to shrink in 2009 by 3.5%, with growth for 2010 predicted at 1.25%.

Growth from 2011 predicted to be 3.5%.

Bank Regulation

Wide-ranging reform planned for financial services.

Tax

Income tax unchanged for this year.

New tax bracket of 50% - instead of 45% as previously announced - for people earning more than £150,000 a year, to come in from April next year.

No personal allowances for those with incomes of over £100,000.

Alcohol, Cigarettes And Petrol

Fuel duty to rise 2p per litre from September and then by 1p a litre above indexation each April for the next four years.

Alcohol tax to go up by 2% from midnight tonight, with tobacco duty rising 2% from 6pm this evening.

ISAs

Tax-free personal savings ISAs raised to £10,200, of which £5,100 can be saved in cash.

New limit introduced this year for the over-50s, next year for others.

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New reports suggest slow UK recovery

Reports from the the CBI and the Ernst & Young Item Club have suggested that while the UK economy will shrink by between 3.5% and 3.9% in 2009, the signs indicate a slow - if fragile - recovery through 2010.

The CBI report indicates a 3.9% contraction in 2009, while the Item Club reckons 3.5%. Optimistically, however, the CBI has predicted a 0.2% growth in the second quarter of 2010.

Chancellor Alistair Darling is expected to predict a 3% contraction in his Budget on Wednesday this week - along with £15 billion of spending cuts in the face of a potential £160 billion public borrowing bill.

The Item Club has also predicted 900,000 job losses in 2009 and a further 500,000 in 2010.

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Budget Day Predictions

Browsing around the various news, economy and finance websites, we find the following predictions for Budget Day announcements by Alistair Darling:

• VAT to rise to 18.5%
• 45% income tax for earners over £150,000 / year
• 0.5% increase in National Insurance for all
• Possible tax changes to help savers - Eg. scrapping 20% on interest earned
• Extension of the new £175,000 stamp duty threshold

We won’t know for sure until the Budget on the 22nd of April. Any thoughts yourselves?

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UK Base Rate unsurprisingly held at 0.5%

The Bank of England has, as was widely expected, kept the base rate at 0.5% following months of cuts.

BBC coverage…

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Australian interest rates at 49 year low

The Reserve Bank of Australia, the country’s central bank, has cut interest rates by .25% to 3%. This is the lowest mark for 49 years.

In the same region, Japan’s central bank, the Bank of Japan, kept its interest rate at 0.1% as expected.

Both countries have recently introduced stimulus packages, with Australia 42 billion Australian dollars and Japan expanding the collateral it will accept in return for loans to commercial banks. The bank now accepts loans on deeds to municipal governments.

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