Apparently we are having falling high street prices.

In the United Kingdom (UK) we are apparently having falling high steet prices. We are experiencing food price deflation and we are just not buying as much as we have been due to recession. It all depends if people start deferring purchases and then retailers respond with price wars etc.
Ways of fighting deflation, which has plagued the Japanese economy for many years, include the Bank of England's quantitative easing (QE) programme. This has meant the
"Old Lady of Threadneedle Street" buying gilts from foreigners, which was not the plan, so that banks could lend more. There are talks about have negative interest rates for banks. This would involve paying the Bank of England for holding deposits at the British central bank and thereby stop the banks hoarding cash.
Unfortunately, the banks, mortgage providers and building societies have overlent on a grand scale and probably need time to work out who are going to repay their loans
and who are not. They are trying to minimise reposessions, which is a better performance than what occurred in the early 1990s.

One big deflation area is the residential housing market. There has been inflation in the number of indices tracking the market but sometimes it is not clear if prices are rising or falling. There are many regional variations in the UK and the market
for £1m plus houses is very rarified and not really reliant on mortgage finance. So, you could be gently deflating in the north-east of England and nicely inflating in West London.

Liam Halligan is a bit concerned about the UK printing presses.

Writing in the Sunday Telegraph economist Liam Halligan has expressed his concern about the quantitative easing (QE) being carried out by the Bank of England. This has not led to a lowering of UK gilt yields and will increase inflation. Halligan says the banks are keeping the QE cash themselves, on reserve or lending to their off-balance sheet vehicles.

Bank of England trundles to the rescue.

After the European Central Bank (ECB) poured liquidity into the continental banking sector last August, the Bank of England has decided to trundle to the rescue of the banks with a £50bn package. Those wonderful institutions, full of overpaid executives, will be able to swap mortgage loans and credit card balances for
UK government bills. Apparently, this will encourage the banks to lend to each other.
http://www.bankofengland.co.uk/publications/news/2008/029.htm
One story is that the package would have helped stave off the Northern Rock collapse.
However, this has been denied, I think by Bank of England sources, who said the Newcastle-based institution was far too gone.
People get the feeling that Bank of England governor Mervyn King wanted the commercial banks to suffer a bit of pain and maybe that will still happen. I wonder if the banks will get away with raising dividends.

Mervyn King, Governor of the Bank of England, said “The Bank of England’s Special Liquidity Scheme is designed to improve the liquidity position of the banking system and raise confidence in financial markets while ensuring that the risk of losses on the loans they have made remains with the banks.”

Does Mervyn King want to support UK banks?

Does Mervyn King want to support UK banks? I don't get the impression he does.
Following the internal audit by the Financial Services Authority (FSA) on the
Northern Rock affair, it transpires that the regulatory body had the impression that the Bank of England would intervene in the interbank market at the crucial time.
The central bank decided not to and Northern Rock found itself bust. As a former
shareholder in the Newcastle-based bank I did not mind taking the hit on the
shares when I sold but I wished the Bank of England had been a bit more proactive
like the European Central Bank (ECB) and the U.S Federal Reserve.

Yesterday, the Bank of England governor was waffling on about hubris. Mervyn King
wants the bankers to pay for their mistakes but this probably will not happen so as
to protect the banking system. He is probably annoyed as the rest of us over Barclays Bank paying one of its staff £21m. However, it is unlikely this will
take place next year.

Are UK interest rates too high at 5.25 pct?

Are British interest rates too high at 5.25 percent? They do not seem to be
supporting the pound against the euro, which seems to be on its way to 80 pence.
It just makes that French holiday gite much more expensive this summer.
Obviously, the Bank of England is concerned about inflation but lower interest
rates are needed to revive the UK economy. House prices are going down not helped
by lenders tightening their criteria for loans. It looks like the 100 pct mortgage
loan is disappearing fast, which will not help first-time buyers, who are crucial
for the housing market.
The European Central Bank is maintaining rates at 4 percent but expects higher
inflation due to energy prices. Inflation for 2008 should be between 2.6 percent
and 3.2 percent.

Bank of England cuts interest rates by quarter point.

The Bank of England has cut interest rates by a quarter of a point today (Thursday, February 7th) to 5.25 pct from 5.5 pct. Will it make a difference to the UK economy? Former Deputy Governor of the Bank of England,
Sir Howard Davies, forecasts that there will be either a slowdown or
recession whatever happens.

Davies is Director of the London School of Economics and has had a wide career. He even supports Manchester City hailing from the great city.

Today (Thursday) the Bank of England said inflation risks had worsened. So why did'nt the bank lift interest rates? I suppose we have got ourselves in a bit of a hole. The U.S Federal Reserve has been ignoring its inflation risks as well by cutting interest rates.

Liam Halligan writes perceptive article about King re-appointment.

In yesterday's Sunday Telegraph, former Channel Four economist Liam Halligan has written a perceptive article about the belated re-appointment of Mervyn King as governor of the Bank of England. Halligan describes King as one of the few world-class economists in the United Kingdom and attacks the dithering of British Prime Minister Gordon Brown. The colummist considers Brown Nero-like and cites unnamed sources in Whitehall, who believe the Prime Minister finds decision-making extremely
difficult while others claim that Brown just likes playing cruel
games.

The Prime Minister's long-term adviser, Schools Minister Ed Balls, has said recently
that interest rates were low and were coming down. This reflects a government battle for lower and sooner rates.

I have always had the sensation that UK interest rates have always been too slow to come down and too quick to go up. Compared with the hare of the U.S Federal Reserve, the Bank of England is a bit of a tortoise.

Northern Rock yet again!!

Sorry to revisit Northern Rock yet again but the weekend press has got me
thinking. It looks like a lot of people are guilty of 20-20 hindsight similar
to the collapse of Polly Peck, where one factor was the probing of the published
accounts by a Swiss German investor. If it was not for the credit crunch,
Northern Rock would still be around. If it was not for the Bank of England refusing
liquidity to help the interbank market, in constrast to the U.S Federal Reserve
and to the European Central Bank (ECB), then again the Newcastle-based institution
would be still with us. It looks like Northern Rock was hit by a perfect
storm.
However, Alistair Blair writes a perceptive piece in the Investors Chronicle, which
questions the famed low costs of Northern Rock and notes that its financial
strength was compromised by its reliance on short term borrowings rather than
customer deposits. Blair says the audit report could have been complemented by
a validation report, which would have pointed out its future financial
problems.
In the blame game nobody comes out very well but I thought Chancellor Alistair
Darling did put his head over the parapet in a media blitz. Some commentators
say Northern Rock depositors ignoring Darling's calls reflected the loss of trust
in politicians. Perhaps more of a factor was scrutiny of the deposit compensation
scheme. This led to a realisation with its lack of protection for relatively
minor sums.

Banking regulation has failed in UK!

It looks like banking regulation has failed in the UK with Northern Rock (NRK.L)
hitting the rocks. It looks like Bank of England governor Mervyn King has not
played his hand very well. He is looking isolated but he had problems with the
tripartite regulation of the Treasury, the FSA (which monitors banks) and the
Bank of England, which spends its time spouting on about inflation (CPI or RPI
anyone). Gordon Brown was responsible both for the tripartite regulation framework
and the adoption of the CPI, which excludes interesting things like mortgage
costs.
I think Mervyn is an Aston Villa fan, which makes him a romantic. In an imaginary
world one could make the case for letting banks fail to punish them for
irresponsible lending but practising the theory does not make a lot of sense.
The Europeans and Yanks must be laughing their heads off. They can't wait
for Gordon's next lecture on economic stability.