Interest rates unchanged

In the US, the Federal Reserve left interest rates unchanged in the 0 to 0.25% range following the latest Federal Open Market Committee meeting. Its statement over the economic outlook was generally cautious and continued to suggest interest rates would remain at very low levels for an extended period.

It also commented that it was prepared to provide additional stimulus if required.

New housing projects rose to an annualised rate of 0.6 million compared with 0.55m previously. There was also a limited gain in permits for the month.

Jobless claims rose to 465,000 in the latest week from a revised 453,000 previously. This under­lined that confidence in the US economy remains weak.

In the UK, the minutes of the Bank of England monetary policy committee, which was held earlier this month, showed that policymakers overruled for the fourth month a dissident’s call for an interest rate rise. As a result, the benchmark interest rate was held at 0.5% and the bond-purchase plan at £200 billion.

The minutes revealed that some members consider that “the probability that further action would become necessary to stimulate the economy and keep inflation on track, to hit the target in the medium term, had increased”.

A separate report showed that Britain’s finances worsened in August as it recorded the largest budget deficit of the month since the beginning of records in 1993. The Public Sector Net Borrowing for August was £15.3bn, compared with £13.5bn a year earlier. This was higher than the £12.5bn expected and was mainly driven by higher inflation which forced the government to pay nearly three times more in interest payments than last year.

In the 16-nation euro area, the flash Purchasing Managers’ Index (PMI) for the manufacturing sector fell to 53.6 for September from 55.1 in August. The service sector reading was at the same level, reinforcing fears of a significant slowdown in the eurozone economies. Fears were eased by a firmer than expected German business confidence index.

Second-quarter Irish GDP contracted by 1.2%, contrary to expectations of a modest increase. Industrial new orders also dropped by 2.4% in July in the EU-16, reversing the downwardly revised 2.4% increase in June. This fall was more than double the 1.4% drop expected, mainly due to a fall in demand for capital and durable consumer goods.

This article has been prepared by Bank of Valletta plc for your general information only.