Friday, 21 December 2007

China's interest rates to rise, US and UK growth rates to slow

Yesterday, China announced that it was continuing its campaign to tighten monetary policy. From AFP/CNA:

China's central bank announced Thursday its sixth interest rate hike this year, the government's latest move to slow rising inflation and cool an economy that is growing at double-digit pace.

The hike, which takes effect on Friday, raises deposit rates 27 basis points and the lending rate by 18 basis points, according to a statement posted on the central bank's website.

The key one-year lending rate will rise to 7.47 percent, while the one-year deposit rate will stand at 4.14 percent.

In contrast, there is no chance of the Federal Reserve raising rates in the near future, despite strong third quarter growth. Reuters reports the latest US economic data.

The Commerce Department said gross domestic product, which measures the total output of goods and services within U.S. borders, expanded at a 4.9 percent annual rate in the third quarter, the same as estimated a month ago and the strongest since the third quarter of 2003...

A report from the Conference Board showed its index of leading indicators weakening sharply for a second straight month in November, with seven of the private-sector research group's 10 measures of economic activity down from October.

Separately, the Philadelphia Federal Reserve Bank said factory activity in the Mid-Atlantic region fell to a four-year low in December. Its business activity index dropped to minus 5.7 in December -- lowest since April 2003 and far below forecasts -- from 8.2 in November.

The Labor Department said initial claims for jobless benefits rose 12,000 last week to 346,000 and the four-week moving average of claims -- a more reliable gauge of labor market conditions -- hit its highest in more than two years...

Separately, the Chicago Federal Reserve Bank said its National Activity Index declined again in November, though less rapidly than in October.

UK third quarter growth, however, was revised higher. Bloomberg reports:

Gross domestic product increased 3.3 percent in the three months through September from a year earlier, the Office for National Statistics said in London today. The reading was higher than the 3.2 percent previously estimated by the government, which was the median forecast of 26 economists in a Bloomberg News survey. On the quarter, the economy expanded 0.7 percent.

The economy is set to deteriorate from here though.

Economic growth may have peaked after a worldwide credit market slump swelled losses at banks and provoked a slowdown in the housing market...

While a pool of pent-up demand will support property values next year, the credit squeeze will keep prices from rising, the Royal Institution of Chartered Surveyors said in a report today...

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