BoE base rate - mini debate

socrates

One observation - everyone talks about BoE - but in my opinion its the government telling them what to do

I have not heard many economists saying that base rates being @ 0.5% is a particularly good economic policy/strategy to follow

Before any election they will not be allowed to move rates upwards at any speed.

Just my opinion

Quasar

As a saver of course I'd like the interest rates to go up, but I think people with mortgages need to be thought of first, so I don't mind earning less in interest if it means that families keep a roof over their heads.

I agree with socrates that the BoE aren't as independent as they ought to be, and its effectiveness was curtailed when dear GB removed much of its powers of control over the banks.

whathavewedone

Good for you Quasar :beer:

Quasar

whathavewedone wrote: »

Good for you Quasar :beer:

Why, thank you!

There is such a thing as "enlightened self-interest" and that means seeing when renouncing some personal advantage brings, in the long run, a greater advantage shared by all and therefore oneself as well. So, a recovered economy would bring me far more personal benefit in the long term than a higher interest rate now but a tottering job market in the future, for example.

socrates

Another observation is thousands of people seemingly fixing for 5 years @ 4-5% - with arrangement fees etc. on top. Thats anywhere between 3.5 and 4.5% over BR!

About a year ago there were loads of deals about at a maximum of 1% over BoE BR.

Seems to me the banks are raking it in from all angles. Getting bailed out, inflated mortgage rates, putting up credit card interest rates, nice pension arrangements to name but a few.

How is that they announce £billion profits year after year and then all of sudden the money has disappeared?

Its all too convenient.

Graham_Devon

It's extremely difficult to say I think. With the current government in power, base rates will stay low a long time. When another government takes over, things could change pretty quickly.

The BOE is very politically governed. This is pretty clear when Brown keeps insisting he's done good with low interest rates...he's lowered interest rates to help hard working families....and when they go up, holds his hands up in the air and says "no no, BOE, independance".

Anyone who thinks the BOE are really independant, should really look at whats said in parliament, and then judge for themselves.

pickles110564

JayScottGreenspan wrote: »

This is what the BoE assumed for the last inflation report:
http://www.bankofengland.co.uk/publications/inflationreport/conditioning_path.htm

God I wish I was clever enough to understand that report!

tomterm8

pickles110564 wrote: »

God I wish I was clever enough to understand that report!

The report means that the present government has made a godsalmighty mess of the economy . That the financial sector is on life support, that there is a massive output gap in the world wide economy(i.e. companies can make more stuff than we can actually afford to buy). And we are all dooooomed, doooomed I say.

Ok, maybe it doesn't say that last sentence.

As a result of the !!!! up, our economic lords and masters speculate that with huge numbers of people losing their jobs, with companies having to cut prices to the bone in order to stay in business, and with the fact even despite the worst devaluation since the ERM debacle our inflation rate is still receeding, inflation may not be the current problem.

And so, they are not going to tighten interest rates.

Well, not until it's too late, anyway.

sdooley

socrates wrote: »

Another observation is thousands of people seemingly fixing for 5 years @ 4-5% - with arrangement fees etc. on top. Thats anywhere between 3.5 and 4.5% over BR!

About a year ago there were loads of deals about at a maximum of 1% over BoE BR.

Seems to me the banks are raking it in from all angles. Getting bailed out, inflated mortgage rates, putting up credit card interest rates, nice pension arrangements to name but a few.

How is that they announce £billion profits year after year and then all of sudden the money has disappeared?

Its all too convenient.

The money's disappeared because people aren't paying their loans back. No interest rate compensates for default. Even 20% interest on nothing is still nothing.

It's true that mortgages are more expensive relative to the bank of england base rate than they used to be. But fixes on savings accounts are available at 3-4%, well above the official bank rate. Swings and roundabouts.

If banks were lending at 1% or whatever they would need to cover their costs by having negative interest rates on savings accounts (i.e. charging you for the priviledge of keeping your money). That'd be pretty rubbish too.

michaels

Someone who gets it - the BoE has lost control of the market which is now being set at the price (rate of interest) where supply (of savings) equals demand for loans giving an interest rate of around 2.5-3% for savers and 3.5-4% for borrowers with the bank margin in between.

sdooley wrote: »

It's true that mortgages are more expensive relative to the bank of england base rate than they used to be. But fixes on savings accounts are available at 3-4%, well above the official bank rate. Swings and roundabouts.