Interest rates

the_ash_and_the_oak

gas bill came through recently. Sure am glad there's no inflation!

the_ash_and_the_oak

I only wish my pay packet would get the same sparkling makeover that the gas bill had

pickles110564

Pobby wrote: »

Just interested to hear what others think on this point. Now that we are at a 300 year low on IRs, how long do you think that they will be back to 5% plus?

Personally I see that this reduction is down to the fact that Crash and Co. need to stick a band aid rapidly on the economy and attempt, and doing that rather poorly, stop the economy totally coming to a halt.

They will stay low until Broon gets kicked out of government.

Pobby

Just a thought. I know that many pensioners are reliant on savings to top up their income ( I am working to that end myself ). They have a pretty large voice when it comes to the polling stations. Although, to a degree, Browns hands are tied, he must realise that it will bode badly for him at the next general.

Thinking about it, perhaps that`s what he wants. Frankly, only an idiot would want to be trying to sort this mess out. Oh hang on, maybe I have just answered my own question........

chucky

Pobby wrote: »

Just a thought. I know that many pensioners are reliant on savings to top up their income

maybe they should be less reliant

how many recession cycles will pensioners have during their retirement? last one 18 years, previous one was 10 years i beleive. will they then be complaining that savings rates may be low and isn't fair on them during the next recession??

maybe it's time that pensioners were given different ivestment advice instead of relying on interest generated on savings.

i have much sympathy for pensioners hurt by low rates by the way - just looking at it from a different angle.

the_ash_and_the_oak

Its an interesting issue. My grandparents sold up 5 years ago to rent and the interest they received on their savings from house sale have comfortably paid their rent and more. Until recently.

When they first sold the idea was to wait for the crash and then buy back in. But as they continued to rent and began to get used to it I think they pretty much decided to never buy again, which was just as well as they sold a little early (to make a quickish re-entry)

Now the interest they receive no longer covers the rent. My feeling is that they should not feel they cannot dip into the capital they received from the sale. They have enough money that it has been paying for them to have a free life, until recently. My feeling is that even if their savings paid them ZERO interest and they had to pay rent for the next 2 years, that this sum in total (around 10-12K) is nothing compared to the rate at which prices are falling.

While a low interest environment is bad for those living off savings, on the other hand it preserves the value of the savings. A high rate of interest would provide an income but erode the total value. It is somewhat swings and roundabouts

In a way those that have such huge savings that they can live off the interest are a little like those rattling around in big old houses, asset rich, cash poor - except they actually have the cash! In the current environment where money is disappearing from the economy, to actually spend some of those savings on living costs can still live a pensioner with savings ahead of the game imo

Pobby

Interesting point.

whathavewedone

There are also quite a lot of pensioners who just rely on their state pension. I don't think those who rely on interest on their savings amount to a massive proportion of the population.

Also the conservatives have said that they support low interest rates in the current climate. I don't think they'd be wacking them up to 5% plus if they were in power now. By the time they do get in (because I will be amazed if labour get in again next year) there may well be an argument for raising them - it all depends if we have inflation or not.

I don't think it's the case that the tories like raising interest rates simply to keep savers happy and make life difficult for borrowers - we simply had completely different economic circumstances in the early 80s and 90s.

My personal view is that if/when the tories do get into power they will be as reluctant to raise interest rates as labour are. Obviously if we have high inflation there will be little choice.

mewbie_2

Just a little reminder about Iceland interest rates currently 17%. That's the cost of the IMF. There is a possibility that Brown's plan won't work (stop laughing) and Britain will have to go to the IMF. They give us money and whack up interest rates.

I'm not saying it's going to happen, but if it did then 5% would be a distant dream.

Generali

fc123 wrote: »

It's times like these that we really need Generali to have time to post.

I want to to know the answer to this too. I might post a Q on Gens blog instead. BTW I have had a drink so my typing might be totally $hi77

Hullo.

I've been in Kiama all weekend (without the Generalissimos ;-)))) as it's Mrs Generali and my 10th Wedding anniversary. What an amazing place!

This is where we went today:

http://farm4.static.flickr.com/3219/2463734850_e400f2f562.jpg?v=0

The dark blue is the Pacific with sky (obviously) above it.

Erm, right. Interest rates.

As soon as inflation starts to rise, interest rates should rise. It's going to be a tricky one because on the one hand you have the Government printing money like billy-o but then it seems that most of that money is going to overseas investors.

What then happens depends on those investors. It may be that they take those pounds and invest in different sterling denominated assets. It may be that they decide to cash in their sterling chips. If it's the former, we should see a rise in other asset prices (eg shares, commercial property, corporate debt) if it's the latter, the pound will fall in value.

The £2,000,000,000 is a drop in the ocean so won't have much of an impact on anything. If the same happens with the remaining £73,000,000,000, that would be enough to push sterling down in value. That would push up prices for imported goods in the UK, but not necessarily inflation.

That sounds stupid - inflation is prices rising, right? Well no, inflation is the persistent tendency for prices to rise. Any one-off change in the price level is just that, a one off. Unless that feeds through to rising wages and thus back into more prices increases and more wage increase and so on (known as a wage-price spiral), then it'll be a one-off rise in the price level, not inflation.

Given the current economic climate, it is highly unlikely IMO that employees, even Government employees, will be able to push successfully for large pay increases. Any fall in the value of the pound would therefore cause a fall in living standards rather than an increase in inflation.

Assuming the Government is looking to inflation to 'inflate the problem away', it ain't going to happen. In fact pushing down the value of the pound will make matters worse in the short term as it'll put more pressure on real income levels and make debt servicing harder and debt servicing is what lies at the heart of the current problems!