When Giving No Help Helps

The Bank of England monetary policy committee voted unanimously not to pump further money into the UK economy (the strategy known as “quantitative easing”) and to leave interest rates at 0.5%. This move was interpreted by the markets and foreign exchanges as meaning that the UK economy was recovering and was no longer in need of further financial stimulus.

As a consequence, Sterling strengthened by 1.8% against the Greenback and 1.1% against the Euro when the minutes of the Bank’s meeting were released. Official figures are due out on Friday which will show if the UK has come out of recession or not.

In the States, reports suggest that top employees of firms which received billions of Dollars of financial aid to help them survive the financial crisis will be subject to a pay cut. The cuts will affect the seven companies that received the most support and are set to reduce the pay of the top 25 earners by as much as 90% and halve the earnings of the next 125 top earners.

The firms in question are Bank of America, American International Group (AIG), Citigroup, General Motors, GMAC, Chrysler and Chrysler Financial. Goldman Sachs and JPMorgan Case will not be affected by the move as they have already repaid the public money provided to them.

The world’s third largest economy is set to hit 8.9% growth. The Chinese data is the best performance since Q3 2008 and is the fruit of the billions of Dollars that the Chinese government has invested in infrastructure projects designed to boost demand and create jobs.

The real test will come when the support package is removed. Manufacturing output is higher, but deflationary forces are at work in the Chinese economy with prices suffering from 8 consecutive months of decline.