Inflation now 3.1% ... ie up 0.3%... Base Rate follow?

[ED]

Today's announcement that Inflation has hit 3.10% (up 0.3%) could be good news for savers. Anyone here reckon a 0.50% Base Rate rise may result? Or do you consider the usual 0.25% is likely for May 10th?

Tax-free Index-Linked Savings Certificates from National Savings & Investments suddenly seem highly attractive! I believe the Inflation figure puts these @ equivalent of 9.88% for Higher Rate tax payers (not me, alas!)

[mystic_trev]

The BoE have been shown to be a bunch of incompetents, surely they must have known what the CPI figure was likely to be?

[dunstonh]

RPI is now 4.8%. The Govt may use the lower inflation figure but RPI is the one that reflects things a little closer to reality.

Looks like an interest rate rise is on the cards.

[Milarky]

I'd say it means higher rates for sure. Curious that it all seems to be falling apart for the government['s management of the economy] just as GB gets to move job! See the movement in the inflation rate summarised here (http://www.statistics.gov.uk/cci/nugget.asp?id=19)

That famous 'letter' was already written according to the Guardian, it seems:

http://business.guardian.co.uk/story/0,,2059015,00.html [10am]

"The Treasury confirmed that Gordon Brown had already received a letter from the Bank's governor and would respond by 10.30am alongside the publication of the letter."

Letter from Mervyn to Gord:
http://www.bankofengland.co.uk/monetarypolicy/pdf/cpiletter070417.pdf

..and back to Mervyn:
http://www.hm-treasury.gov.uk/media/FEE/3D/chxresponse_170407.pdf

Update:
Then, at 11.30, the Grauniad uses the exchange of letters idea in it's story (remember, you read it here first)

http://image.guardian.co.uk/sys-images/Business/Pix/pictures/2007/04/17/Signatures128.jpg

http://business.guardian.co.uk/story/0,,2059099,00.html (you decide)

[airwalk]

I reckon It's Guranted to go up 0.5%.

[Almost Redundant]

A rise on the cards no doubt but I dont think they will want to start a panic, so I guess it will only sadly be 0.25%.

[ED]

Impressed how on-the-ball you folk are. If only those in Government were likewise! Even the Pound is now above the US $2 point. Bad for exports, I guess.

[bristolleedsfan]

BOE wont do anything to harm mr brown chances of picking up the keys to no 10 so will be 0.25% increase, if bank of england is " wholly owned by the government" how can it be independent :rolleyes:

http://www.bankofengland.co.uk/about/parliament/index.htm

heres an alternative version to official "letter" events ;)

http://www.order-order.com/2007/04/what-gordon-wrote-to-mervyn.html

[rebeccaj]

BOE wont do anything to harm mr brown chances of picking up the keys to no 10


oh yes, that's a very good point, and probably truer than we think. :mad:

[bristolleedsfan]

Former governor Edward George has already admitted that the MPC fuelled the housing and consumer spending boom ( resulting in rise in personal debt) towards the end of labours first term to avoid a recession by keeping interest rates artificially low
http://www.ananova.com/business/story/sm_2250445.html?menu=

[steady__eddie]

Half a percent would be nice for my retirement and comfort spending shortfall but I am inclined to lean towards a quarter as the man said, "CPI inflation is likely to fall back within a matter of months".
However, having said that, it would not surprise me if it was left unchanged given the current "power struggle" and the anticipated outcome of the forthcoming local elections.

[amcluesent]

>CPI inflation is likely to fall back within a matter of months".<

What a crock. We are already past peak oil, and with the politically instability in Russia and Iran going for death or (nuclear) glory, $100 oils looks a sure bet within 18 months.

[ManAtHome]

Some light reading from Feb 2006 http://www.myfinances.co.uk/uk-economy/economic-indicators/inflation/interest-rates-on-hold-2006-$15157906.htm

[bristolleedsfan]

Some light reading from Feb 2006 http://www.myfinances.co.uk/uk-economy/economic-indicators/inflation/interest-rates-on-hold-2006-$15157906.htm

nice share speaks 4 itself :rotfl:

[kittie]

I`m in the process of hunkering down. This increase in inflation and potential interest rate rise is going to knock companies and public spending for six

[Anon]

Not wishing to take this thread off topic, but it does make a mockery of the regulations regarding sales (of interest to Money Savers!) that furniture companies could bump their prices up 10% in anticipation of the Easter Sales (ie being able to then seem to reduce their prices in adverts). The fact that this is specifically mentioned and can contribute to such an affect on the overall economy perhaps demonstrates that the consumer is being manipulated (yes, I know we know that furniture shops seem to always have sales on ...!) and that perhaps the rules for sales need looking at.

Anon

[Fella]

A 0.25 increase is currently trading at 1/5 on Betfair (i.e. it's considered almost a certainty).

No change is 10/1. An increase of 0.50 is also 10/1.

I'm slightly surprised at that since a 0.25 increase from 5.25% is fairly puny (it represents a rise of 5.88%. When interest rates were 3.50 a 0.25 increase represented an increase of 7.14%).



Fella

[ED]

Anon wrote ''that furniture companies could bump their prices up 10% in anticipation of the Easter Sales (ie being able to then seem to reduce their prices in adverts).''

Shocking, and you raise a valid point. Perhaps the authorities will prevent this happening again...especially as it is deemed to have affected Inflation so profoundly.

Fella - 0.30% rise in Inflation seems almost too much for a 0.25% Base Rate rise to be sufficient - though BoE may want to keep in with impending PM Gordon Browned-off. Were I a betting person, I'd be placing a 10/1 bet for a May 10th increase of 0.50%. But I share kittie's concern for detrimental consequences for companies, public services, etc.

[RayWolfe]

This price rise prior to a sale nonsense happens all the time but it is not allowed in most of the rest of Europe!
However, if the Government tries to change it, wait for the flak to fly, especially from the Daily Mail talking about "Red-Tape" for poor benighted business and "copying rubbish Europeans"!

[liamsquire]

Interest Rates should be up in May I would imagine but I can only see the MPC increasing the rate by 0.25%, which is miniscule. I would love to see 0.5% although I highly doubt they will have the resolve to go through with it unfortunately.

[steady__eddie]

Average earnings figs out today have provided more ammo in favour of a 0.5% increase.

[Mr Mumble]

Can't see 0.5% happening in May. Perhaps for the sake of the economy it should happen but the BoE seem more interested in not popping the property bubble than keeping inflation under control.
All of the 43 economists surveyed by Bloomberg News yesterday expect policy makers to lift the Bank Rate to 5.5 percent next month. On March 30, nine out of 53 economists had expected no change in April or May. A report yesterday showed inflation last month at the fastest pace in a decade.
http://www.bloomberg.com/apps/news?pid=20601102&sid=aEuOnI84rE5Y&refer=uk

[RayWolfe]

Ah but! 49 of 50 economists did not predict the January rise.
I suspect however that the wage inflation announced today will have a bigger effect than the inflation figures which we know is a blip.

[ManAtHome]

100% of Men at Home didn't predict that "Danny" would would vote for a hold in April..!! The 0.5% bet may not be that crazy (well, yes it probably would be - BoE have only ever moved 0.5% in a downwards direction).

[ED]

Fixed Rate mortgages being rapidly withdrawn this week by many lenders may signify widespread expectation of more than a quarter-point rise in Base Rate. Or can anyone think of another reason?

Also, is it likely building societies + banks may need to make savings rates extra attractive, to bring in sufficient funds to lend to more reluctant mortgage borrowers as Base Rate heads towards the mooted year-end 6%?

[ManAtHome]

Fixed rates are more likely impacted by the Chinese getting closer to raising rates and maybe the Japanese following suit. Long-term rates often move independently of BoE short-term rates as most of the cash is sourced outside the UK.

ps - (ED) think you meant more than a quarter-point hike (not drop) in rates - or are you really "Danny" and should I claim my fifty quid..?

[McSaver]

i think the MPC will be stubborn enough just to raise by the quarter point, they probably really want a no change but cant really do that.

[free4440273]

...no doubt about that - they're gutless. they do not really have a clue what they're doing. they could have nipped this (inflation, rising house prices et al) in the bud ages ago; they chose deliberately not to. now comes the reckoning...all the signs are now pointing to a massive correction in property and the stock market. the fact that the markets quivered this week on data showing just how strong the Chinese economy is, is not only telling it's worrying. hope everyone has a good Monday week - rain at last. :)