Interest Rates go down. Oil refuses to follow the trend

The Tradefair Trader / Editor / 11 April 2008 / Leave a comment

As the BofE devilishly plots the rescue of the British economy, oil is going through the roof. Get off the phone to the builders - we don't mean literally.

UK interest rates have been cut for the third time since early December. Rates have been reduced from 5.25% to 5.00% by the Bank of England in a move that was all but a dead-cert, and one that any serious punters should have got on to.

But why was it done? "It is vitally important to ensure that problems in the financial sector and in the housing market do not damage wealth-creating businesses," says David Kern, economic adviser to the British Chambers of Commerce. So he should know. Kern goes on to state, "Undue delay in acting threatens to reduce the effectiveness of interest rate cuts that the MPC itself has anticipated already."

Dithering costs money. A quarter-point reduction may not be enough. The rate, if it goes anywhere in the next few months, will go down and not up. The Daily Express (which at least has been doing its bit to spread its proprietor's wealth around of late by libelling people all over the show) is predicting a loan rate of 3.25% next year. But if these journalists knew anything about the economy, they wouldn't spend their days writing about the weather in the Express, but rather would be able to choose the weather they want, by earning truckloads in the city, and jetting off skiing or sunning every other week. Rant over.

Meanwhile, the interest rate binary market is trading at 90% on May's rate going to 4.75 percent, and at 80% to remain at 5.00%. Much could depend on how the rate reduction affects inflation. The Bank says inflation could remain above the Government's target of 2%. The BBC reports that, "inflation should fall back, even if the price of oil and other commodities remain at their current high levels."

Oil's well that ends well. That's a pun. And the oil traders are gurgling with laughter. Oil has surged to over $112 a barrel.

Tags: Brent Crude, Interest Rates, Oil, spread betting, US Crude