The B.O.E decision Tommorow ..

WTF?_2

ruggedtoast wrote: »

I cant believe the number of people who seem to think that an interest rate cut will bring inflation down. GMTV were saying that this morning, I almost fell off my chair.

These are the same sorts of people who thought that borrowing 200k on a joint salary of 40k to buy a house was fine because the monthly repayments on their 2-year fixed rate teaser (at a time of the lowest interest rates in history) looked affordable and anyway, house prices only ever go up innit?

Generali

ruggedtoast wrote: »

I cant believe the number of people who seem to think that an interest rate cut will bring inflation down. GMTV were saying that this morning, I almost fell off my chair.

Well a cut in interest rates reduces the RPI as it reduces the mortgage payments component. Usually a cut in interest rates leads to a rise in inflation a few months later. It's not quite as simple as that though.

martinman3

Generali wrote: »

Well a cut in interest rates reduces the RPI as it reduces the mortgage payments component. Usually a cut in interest rates leads to a rise in inflation a few months later. It's not quite as simple as that though.

I can make a prediction that rates must be cut by 0.25% before Dec 6 2008.
How ?
Because the annual RPI calculation uses the change in base rates over the last 12 months for the mortgage interest component as you say. 12 months ago the rate was 5.75%, currently 5.00% giving a negative effect on RPI. Base rate was cut to 5.50% on Dec 6 2007, if rate is not cut by 0.25% before 12 month anniversary of this then the negative effect will lessen and RPI increase even more from Dec this year.

If you are wondering why it has so much of an effect it is because the weighting of mortgage interest payments in the RPI calculation has been increased over the last few years.

From http://http://www.statistics.gov.uk/elmr/04_08/downloads/ELMR_Apr08_Gooding.pdf

RPI Weightings for Housing Costs
1987 157
1992 172
1997 186
2002 199
2006 222
2007 238
2008 254

misskool

It's a hold

http://news.bbc.co.uk/1/hi/business/7597841.stm

Dan:_4

misskool wrote: »

It's a hold

http://news.bbc.co.uk/1/hi/business/7597841.stm

4 hours late mate

martinman3

martinman3 wrote: »

A chap from Barclays Capital speaking on BBC News this morning said that the market had already priced in a rate cut and so if rates were held that the pound would rise.

We shall see.

Pound has fallen further since then.
Another so-called expert talking b******s.:rolleyes:

Heyman_2

It would be really refreshing to see them take some bold action - i.e. a full 1% rise or cut. It would set the cat amongst the pigeons and get us to where we're inevitably going a lot quicker!

It's worth looking at the US though to see that dramatic cuts will probably make no difference - I mean, I'd like to see cuts as I'm on a Tracker Mortgage! But the right decision would probably be a rise. They'll have to take the hit on something eventually - economy or inflation. May as well get the pain over with.