Implications of recent Bank of England statement

[Not your average framer]

While listening to the BBC news today, I became aware of the Bank of England's latest statement, which says that they are planning future interest rate cuts at some unspecified future date. Not suprisingly this has caused a substantial run of the pound, leading to a major lost of value of the pound on the world's money markets. In the light of this statement, only an idiot will want to buy sterling and those who have got some will be keen to sell before the price drops any futher.

At a stroke this statement will accelerate the rate of increases in unemployment and the rate of business failures. Unfortunately the guy who made this statement is much too smart not to know this. Therefore the only conclusion I can draw from this, is that the damaging aftermath of this statement to business and employment is not only known, but is a matter of deliberate govenment policy and the suffering this will cause is considered acceptable.

Apart from the fact the rest of the world think we've lost the plot, the aftermath of this statement will greatly damage the interests of almost or perhaps all british retail business. The resulting weakening of the pound will make our exports cheaper. (Big deal! In the present financial climate nobody in the world is looking to buy much of anything anyway, so there's nothing to be gained by that!) Unfortunately, it will also make our imports more expensive too! No doubt this will unnecessarily put many people out of business!

Of particular concern to UK picture framers, will be the fact that with so many of our materials being imported from overseas, we can expect to be squeezed by increasing material costs and limited oppotunities to pass these increases on to our customers, without the risk of customer price resistance.

I suspect that we all, will soon feel the damaging effects of this statement and I expect some significant price increases to become clear at the spring fair, if not sooner. Any comments?

[John]

But is there not an up side?

If people can see little or no return from keeping their money in a bank, will they not rather spend it? Thus stimulating the economy.

[silvercleave]

John

You have money in the bank???

[framejunkie]

If I understood macro-economics I'd probably not be a picture framer.

[Not your average framer]

But is there not an up side?

Up side! I'd like to know how! I used to work for a company where I had to buy very expensive items from overseas and had to choose the right day to do each deal. I was well trained in how the currency market works.

Announcing an interest cut in advance has always been one of those "Thou shalt not" rules which has been carefully followed throughout the years to avoid a run on the pound. Interest rate cuts are inacted as they are announced to stop investors pulling out their money and minimising their losses and since no one knows when the future cut will come, the international money markets will make sure they invest elsewhere.

The obvious result of this, will be money being withdrawn from British banks and financial institutions to invest it elsewhere. If the banks where short of money before, this will make matters far worse.

Gordon Brown will no doubt say this was nothing to do with him, well it has everything to do with him. He changed the system to make the bank independant, thereby appearing to abandon control over interest rates, but also abandoning the ability to maintain interest rates and fine tune areas of the economy by means of tax concessions. You will notice I said appearing to "abandon control". He still calls the shots, but wants to escape the blame!

At a stroke this annoucement has made a complete nonsense of borrowing all those billions to put more money into the British banks. The pound has dropped massively on the world markets since this announcement. Keep an eye on the value of the pound and what the media say about it. I think you will see what I mean.

[kev@frames]

I've been approached by another two banks this week, do i want to move my account there.
Proof that the entire banking system has gone mental if ever you needed it.

Tp paraphrase Groucho Marx, I wouldn't be too confident in placing my account with a bank who would want me as a customer

But seriously, if you are looking for an up-side, if banks are actively seeking out new business customers like this, now might be the time to nail a deal or squeeze your existing banking provider for a better deal?

[Bill Henry]

This whole world economic mess is confusing to me.

When “prime rates” drop, so do most lending rates like home mortgages, credit cards, lines of credit, etc. Which, of course, means less money coming into the banks, which means they have less to lend, thus (if I am following this correctly), will mean a slow down in the economy.

But, over here one major credit card company has stated that it will actually raise their interest rates because more and more people are defaulting on their credit card payments. They claim that the have to make up for the lost income. Okaaaaay …

But, every week I get one or two offers from other banks enticing me to switch over to them because they are offering lower interest rates and free balance transfers.

So, what is going to happen to the first bank when people bail out of them and go with Fred’s Credit Card and Double Glazing company?

I just don’t get it!

[Not your average framer]

This whole world economic mess is confusing to me.

Hi Bill,

I can agree with that.

However there is one thing we can do and that is find out where our materials come from and keep an eye of the exchange rates. Sooner or later worsening exchange rates will translate into price increases.

The benefit of staying in touch with these things, is to have time consider the implications and our response before we get hit with them. I think that being ahead of the game will give us a little extra time to think, which should help us make better decisions as bad things happen.

For those in the UK, check this out:

http://www.x-rates.com/d/EUR/GBP/graph120.html

http://www.x-rates.com/d/EUR/GBP/graph30.html

These are all too early to see any reaction to the Bank of England statement, as you will see things are not so good already. Rocking the boat by talking down the market and making unhelpful statements ain't gonna help the situation. I'm waiting to see what happens next week. Some of us, after looking at these graphs, will already be thinking how much our materials costs will go up when we get our suppliers new prices which often get up dated at the time of the Spring fair.

I you see what I mean, now is a good time to be getting our business planning in gear and to know how this will affect us.

[TheFrameShed]

I started my new framing business at the beginning of November 2008 part time(3/4 days a week) after having my full time job in website/catalogue design cut from 5 to 3 days a week. I decided to get a small loan from the bank and follow in my fathers footsteps and start 'The Frame Shed'. Some would say madness in this economic climate but I decided to look at the downturn in a positive way Eg: property price crash - people decide to stay put and decorate/update rather that move - framed items suddenly become a very good value way of updating your walls.
Combined with the fact that unless you have recently lost your job or are trying to sell a house that you bought within the last two years, most peoples income and therefore spend is really unaffected. Judging by the amount and type of work I have taken in in the last 3 weeks this is proving true.
I like to think that I am a competant if not experienced framer and keeping my prices reasonable and quality high has gained me quite a lot of work in my first 3 weeks trading. At least the mortgage/loans/bills get paid this month!

All the best
Simon

[Not your average framer]

I'm assuming that the 30% or more loss in the value of the pound will be reflected in increased material costs when suppliers bring out their new catalogues to coincide with the Spring Fair and I don't intend swallowing any forthcoming increases. With this in mind, I'm aim to hide some of these increases by changing some of the mouldings I offer to suitable lower cost ones and in some cases to consider extending my hand-finishing activities to lower priced mouldings if it makes sense to do so. Some very cheap plainwood mouldings can often be given a quick once over with a suitable match-pot from your local DIY store and can look very good too!

A lot of mouldings went up much more than expected last year and I would suggest some strategic advance planning for this happening again would not go amiss.

I note that the exchange rates have been moving in a more helpful direction for these last few days. It would be nice for imported materials prices to see the trend continue.

[Bill Henry]

This is a bit off topic, but have you guys seen a significant drop in the price of gasoline/petrol and other petroleum based products like home heating oil?

Last July, gas was selling at over $4.25 / gallon; now, we are down to around $1.80.

[Not your average framer]

Hi Bill,

I would say that you're not off topic at all. Those fuel costs impact on the costs on just about all the materials we need to buy, so any drop is very good news. Also our customers may feel like spending some of that extra cash it will leave in their pockets. This is very timely too, as it could just help the Christmas sales situation too! You're bang on topic, Bill.

[silvercleave]

This is a bit off topic, but have you guys seen a significant drop in the price of gasoline/petrol and other petroleum based products like home heating oil?

Last July, gas was selling at over $4.25 / gallon; now, we are down to around $1.80.

Yes thanks Bill for reminding us about ripoff Britain,
regards
Ian

[Not your average framer]

Guess how much extra our materials will cost next year when the new catalogues and price lists come out?

http://www.x-rates.com/d/EUR/GBP/graph120.html

It's a good time to start thinking about how this will affect our businesses and what we are gonna do about it!

[Moglet]

Hi all,

Bit late to the party on this one due to my absence, but if it's any comfort to ye, buying from UK suppliers has become a much more attractive proposition, and I am planning to purchase much more from UK vendors in the next 12 months, and I'm sure I'm not the only one. Maybe this will be a small silver lining to the cloud? (Pardon my naiveté (and lack of umlauts), as I'm not an economist, but isn't it a good thing overall for the balance of payments if more money starts coming into a country via export trade?)

BTW, what's the going interest rate for overdrafts over there at the moment? (I ask because I'm curious as to how much of the interest cuts are actually being passed down to customers.)

[Dermot]

Hi all,

BTW, what's the going interest rate for overdrafts over there at the moment? (I ask because I'm curious as to how much of the interest cuts are actually being passed down to customers.)

As of today bank interest rates in the UK are at the lowest in the 300 year history of the Bank of England…

[JB183244D]

Received the following email from Wessex today, looks like the hikes have started

Dear Customer,

"As is normal at this time of year we have received price increases from the majority of our suppliers. We are therefore obliged to increase our selling prices by approximately 5% overall.
In addition, Sterling has suffered severely against the Euro and the U.S. Dollar. We have therefore been compelled to adjust our selling prices on certain mouldings and other products bought in Euros and Dollars, details of which can be obtained from our website. A new Price Guide is being prepared and will be distributed as soon as possible".

To quote Captain Blackadder..... "Baldrick, I think the term rhymes with clucking bell".
or maybe Captain Darling.........."Made an entry in my diary on the way over here, that just read, Bugger".


Mark

[Roboframer]

Yep - love it!

"We are passing our problem on to you - you go ahead and have your 50% off sale mind"

Just one word for Wessex.

SIMONS!

[Not your average framer]

Received the following email from Wessex today, looks like the hikes have started

Dear Customer,

"As is normal at this time of year we have received price increases from the majority of our suppliers. We are therefore obliged to increase our selling prices by approximately 5% overall.
In addition, Sterling has suffered severely against the Euro and the U.S. Dollar. We have therefore been compelled to adjust our selling prices on certain mouldings and other products bought in Euros and Dollars, details of which can be obtained from our website. A new Price Guide is being prepared and will be distributed as soon as possible".

5% doesn't sound too bad, but the words "In addition" sound a bit more disturbing. We will all know more about this, when we come back from the Sping fair with our new updated price lists. I expect that one effect of any increases will be more deletions from catalogue ranges.

As I suggested, when I started this thread, ALL of us need to adjust our thinking and strategy to ensure that we minimise any negative effects this may have upon our businesses. It's good to be thinking about this as early as possible, so that ALL of us are ready and know what we are going to do about it.

[Roboframer]

Yep - love it!

"We are passing our problem on to you - you go ahead and have your 50% off sale mind"

Just one word for Wessex.

SIMONS!

Apologies - I read 'Wessex' but for some reason thought 'Mainline'

Wessex/Glass & Mirror then.

Watch what happens to the TruVu/other speciality glass - according to my rep it could be up to 25%.