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Thursday, November 6, 2008

BetOnMarkets Afternoon Update

Today, the Bank of England hit the headlines with an unexpected 1.5%
rate cut. The move was largely pre meditated as a shock tactic to boost
the ailing UK economy ahead of the all important Christmas period.
Spreading the cut over a number of months would have had much less of an
impact as it can take many months for the benefits of a rate cut to
filter down to consumers. The MPC have sent out a message that they are
prepared to treat the threat posed by the global slowdown very
seriously. Unfortunately this message is a double edged sword, the
euphoria that immediately met the rate cut was short lived and the FTSE
soon rolled over and headed back towards the lows of the day. Market
participants may be taking the view that for the MPC to slash rates in
such a dramatic manner, things must be /really/ bad.

There is also the possibility that today's rate cut might make it less
likely that the MPC will cut again in the near future. Experts had been
calling for cuts of this magnitude over a number of months, but the MPC
may have bundled all their planned rate cuts in one dramatic roll of the
dice. It may be some time before they cut again, preferring to let the
dust settle on the biggest single cut in a generation.

Although on the face of it, financial stocks are still down hard on the
day, today's rate cut has at least helped the sector to perform
relatively strongly today compared to other sectors. Most UK financials
are above the levels they were trading at before the rate cut was