When will interest rates go up again?

Primrose

I reckon for the next five years interest rates won't rise much beyond 2.5%. I think this is going to be the mother and father of all recessions. Anybody who is banking on relying on interest from their savings to supplement their pensions will progressively find themselves in deepening trouble. I think I should put this prediction in my diary for five years time and will be delighted if found to have been proven too pessamistic.

davilown

Maybe being a bit naive but interest rates may have been an average 7%-8% but in the current market with all the previous lending, surely they would cripple those on SVR? Would it not be like the 15% rate seen in the early 90s due to the actual level of lending amounts?

IMO, I think rates will start going up, as previous posters, after the next gen election but not more than 4.5% in a five year period. The main reason they won't go above this for a few years is the inevitable basic tax increase and an increase in VAT to 18.5%.

This is my opinion though and I have no professional idea about what I'm talking about!

Dan:_4

Who knows. This time last year if anyone suggested rates would be 1%, they would have been laughed out of MSE. Infact, if I remember correctly everyone banged on and on about people not being able to afford their mortgage once the nice 5% fixed rate expired.

Now they can't wait for it to expire!

Generali

Wookster wrote: »

What are your thoughts on this?

That is shouldn't be done and it's crazy even to contemplate it, especially in the current circumstances.

You have a situation where Governments across the world are looking to borrow money and won't all be successful (as has already been seen with countries bringing in the IMF). In future the countries that are able to borrow money are the ones that investors thing are the best bets.

What do you think foreign buyers of Government debt see when they look at the UK? They see that the UK ran a biggish deficit under relatively benign economic conditions while the same party is in power that delivered high inflation and caused the UK to have to go cap-in-hand to the IMF. That's already going to be causing some alarm. Printing money in large quantities will make things worse and risks bankrupting the country if the Government can't roll over existing debt as a result.

chucky

Dan: wrote: »

Who knows. This time last year if anyone suggested rates would be 1%, they would have been laughed out of MSE. Infact, if I remember correctly everyone banged on and on about people not being able to afford their mortgage once the nice 5% fixed rate expired.

Now they can't wait for it to expire!

and now the same crowd are saying the opposite...

Wookster

Generali wrote: »

That is shouldn't be done and it's crazy even to contemplate it, especially in the current circumstances.

Interesting.

Its very worrying when you think that we are already running a ~9% deficit, and the proverbial !!!!!! hasn't hit the fan yet. What happens when unemployment hits 3M?

It doesn't bear thinking about really.

If there is a run on the pound as a result do you think its likely to happen quite fast or happen over a few weeks?

seraphina

So if the BoE want to sell many gilts, they can lower the price. Why can't they also increase the interest rate to make them more attractive to buyers - ie, instead of making them cheaper, increase the return?

Is this because raising IRs would have negative effects on the whole economy?

And isn't inflation (CPI) still at 3%, so still over the BoEs target at 2%? This alone makes me think IRs will inch upwards.

Walletwatch

seraphina wrote: »

So if the BoE want to sell many gilts, they can lower the price. Why can't they also increase the interest rate to make them more attractive to buyers - ie, instead of making them cheaper, increase the return?

It's two ways of saying the same thing - lowering the price of gilts essentially mean increasing the interest rate the BoE pays on them, or in technical terms, the yield on these gilts to those subscribing to it, to ensure they choose these gilts over those issued by other sovereign states.

As for interest rates, that is what this discussion is all about - on the one hand, you cannot get yourselves to raise interest rates if the idea is to alleviate the credit availability situation, but on the other hand, if the BoE raise money by increasing the coupon rates (what they pay on these gilts), they will end up paying more than what they receive when lending against these gilts..

somabc

Really2 wrote: »

Acording to the BOE they see inflation near 0% untill 2012. Cant see them putting up rates if inflation is going to be below 2%.

I think we will be looking somting like near 0% for the next 2-3 years. Most probably not looking over 4% in 5-10 years.

or even somthing like Japan.

What? Inflation is 3% and the banks target is 2% (CPI)

Wookster

somabc wrote: »

What? Inflation is 3% and the banks target is 2% (CPI)

All of a sudden the targeted measure now seems to be the RPI which is at 0.1%. Inflation of food items is still high at 10%, and QE could have a disastrous impact the exchange rate...

It gets better and better.