pounds 25bn windfalls could trigger inflation boom
Monday 12 July 1999
Consumer demand will get out of control if the Bank of England keeps interest rates on hold or if it cuts them further, Deutsche Bank warned. It is the first time any serious attempt has been made to put a figure on the new wave of demutualisations.
Economists at the German bank have raised their forecasts for consumer spending by more than half to 3.5 per cent for both this year and 2000.
They said the impact of 2.5 per cent worth of cuts in interest rates and an accelerating housing market would combine with the windfalls to trigger extra spending.
Members of Scottish Widows will share a pounds 5.7bn bonanza from the takeover by Lloyds TSB, pounds 1.1bn will be distributed to AA members as part of Centrica's purchase of the roadside rescue group and Bradford & Bingley is on the road to a pounds 2.5bn demutualisation.
Deutsche has pencilled in up to pounds 15bn of windfalls from a insurance companies including Equitable Life, Friends provident, Scottish Life and Scottish Provident, even though it is far from certain whether these will opt to drop their mutual status. "All in all, there could be quite a substantial consumption stimulus from demutualisations in the next few years to the tune of pounds 20bn to pounds 25bn ... "There is a risk of a mini-consumer boom later in the year," it said. "If, as we expect, the Bank of England's Monetary Policy Committee keeps interest rates on hold for the next six months, or even makes further reductions, consumer demand may threaten to get out of control next year and push interest rates even higher than the 6 per cent level that we forecast."
In 1997 the Bank forecast up to 10 per cent of the windfalls would be spent in the first year, adding up to 0.4 per cent to consumer spending, and it factored the impact into its inflation forecasts. Although retail sales hit a 10-year high of 5.3 per cent in 1997, they fell sharply to 2.9 per cent last year and are now running at just 1.9 per cent. Consumer spending fell to 2.7 per cent in 1998 from 4 per cent in 1997. Deutsche said it revised up its forecast for consumer spending because of the strong labour market, loosening of monetary policy and falls in import prices.
"The prospect of more demutualisations ... may further fuel the fire of the housing market," it added.
- 1 Notting Hill Carnival: Woman shares selfie after being ‘punched in face for telling man to stop groping her’
- 2 Keira Knightley topless: Usually conservative actress does own take on #Freethenipple campaign for Interview Magazine
- 3 Daily Show's Jon Stewart destroys Fox News for its Ferguson coverage
- 4 When elitism grips the top of British society to this extent, there is only one answer: abolish private schools
- 5 Brother and sister, Christopher Buckner and Timothy Savoy, arrested for 'committing incest after watching 'The Notebook''
Ashya King missing: Police hunt five-year-old boy with brain tumour snatched from Southampton hospital by his parents
Keira Knightley topless: Usually conservative actress does own take on #Freethenipple campaign for Interview Magazine
YouTube video posted by Isis militants shows 'execution of 250 Syrian soldiers'
Botched ice bucket challenge leaves man critically injured after plane drops hundreds of gallons of water
Papua New Guinea Mount Tavurvur volcano eruption sees international flights diverted
Exclusive: We share blame for creating 'jihad generation', says Muslim strategist
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
Ukip Douglas Carswell defection: Tory MP jumps ship to join Nigel Farage
- < Previous
- Next >
iJobs Money & Business
£450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...
£32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...
£200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...
£400 - £500 per day: Orgtel: Test Manager - Banking - West Yorkshire - £400-£5...