Bank of England Base Rate - When will it go up?

rosshind wrote:

Hello Money Savers :-)

I'd like to spark a discussion about the bank of england base rate... will it go up? if so, what are the time scales involved? I have heard in the media that we are on the verge of a global increase in interest rates.. Do you agree? If so why is this the case, how long might it take and how severe might the increase be?

You have the floor money savers... I think this one will help a few people on the boards, so thanks in advance :-)

Ross :-)

Lets not forget that predicting something that may or may not happen in the future is not possible to do with any sort of accuracy.

The so called experts predicted another rate cut early this year but then global inflation started to become a concern.

For what it's worth my guess is that the BOE will move .25 higher in the next 6 months. This is based on oil remaining high over this period.

If oil remains high and house price inflation gets above 10% then it could keep going up.

where's Mystic Meg when you need her?

Ok, i'll post what I think.

Firstly, those predicting interest rate cuts earlier this year, they were never supported by the money markets. The markets never thought rates would reduce, although there was a point when they were broadly flat.

Now, looking back to August when the BoE reduced rates I did think it was the wrong thing to do. I contacted the BoE about this, asking a variety of questions, and realised them came to the following conclusions:

-Commodities (read oil&gas) were a short term blip
-Consumer spending was down, meaning below trend economic growth

I argued the increase in money supply, at double digits, would feed inflation in later years. I also argued that commodities were not a 'blip' are were reflective of the excesss money throughout the world.

Looking to today, I am correct. Look at oil, it hit new highs last week. And I think it will go higher until rates go up worldwide. Also, inflation is in the system when looking at input and output prices - it's just retailers are not passing the increase to consumers - yet.

Now, the BoE are behind the curve. To slow real inflation now they would have move rates up faster than otherwise needed.

The BoE have clearly decided to ignore real inflation, and hope it doesn't cause second round wage effects - i.e. you and me demanding more money from our employers to pay the bills.

Now, we are at the mercy of the world. We are now dependant on other countries financing our debt, which is growing in double digits. When other rates become attractive there will be a run on the pound (several years away). To prevent this the BoE need to raise rates along with the rest of the world.

A quote from Stephen Nickell during a lecture of his (he teaches at a uni) "The job of the rate setters [BoE MPC] is to set interest rates as low as possible while denying any inflation exists" (or something like that).

What do I think about rates? They need to go up. They might not go up this year, but any delay is just delaying the enevitable. I think rates will peak between 5% to 6%, where the UK will be in recession requiring lower rates. The pound will also devalue substantially.

Yes, inflation was high pointing towards a rate increase.

F_T_Buyer wrote:

So markets are looking 4.75% by feb 2006.

well that's bad start if you can't even accurately predict historical prices....;);)