Banks will want action that’s bold

Apr 16 2008 by Tim Jenkins, Western Mail

TESCO pulled the proverbial rabbit out of the hat yesterday by posting very positive results.

Profits of £2.8bn for the year were in line with analysts’ consensus and the share leapt 6% on the news.

The company detailed that it had a very strong start to the year but its chief executive, Sir Terry Leahy cautioned: there are “52 weeks in a year not five”. Maybe so Tel, but as you say “every little helps”.

Meanwhile PM Golden Brown held a “crisis” meeting with the UK’s biggest banks and top City-types to see what can be done to ease the current problems in the money markets.

The gathering is set against a background of continuing worry about the property market. A survey of influential estate agents (that’s not an oxymoron) shows things are as bad as they were back in the early 1970s.

I’m too young to remember the ’70s but if it’s anything like I’d imagine it to be, Gord ’elp us.

I do however remember in 1978 Dennis Healey saying of criticism by Geoffrey Howe that it was like being savaged by a dead sheep.

Thirty years later I can’t help but think the sheep have taken over the asylum (for asylum also read country).

The 25 basis point cut in interest rates last week is hardly bold and the Government’s intervention over Northern Rock is lamentable. I guess what the bankers meeting Mr Brown yesterday demanded was support of a more far-reaching type. Dare I say a more American-style solution?

So far in the US the Fed has moved to take very aggressive cuts in interest rates and has assisted the market in accepting mortgage-backed securities as collateral for government bonds.

The FTSE 100 had a strong day all things considered and was led in part by resource stocks. Surging oil and metals drove the market up and heavy buying in BP by a Chinese sovereign wealth fund ensured that other companies in the sector enjoyed a canter into the blue.

Sterling slumped to a new low yesterday after traders were surprised by week inflation data. Happily this unexpected inflation data has heightened expectation of further cuts in UK interest rates.

Some analysts believe the rate could be cut to 4% by the end of the year. Good news for borrowers if the banks decide to pass on the cuts. But don’t start holding your breath quite yet.