MSE News: Record inflation hike: could interest rates soon rise?

Generali

Sir_Humphrey wrote: »

I find it disturbing how people are starting to treat 0.5% base rates as the new low and 5% as the new high.

The norm is RPI + 2-3%. More if inflation is rising and less if it is falling as a rule of thumb.

Anyone considering taking on debt should remember that and plan for what happens if the RPI hits 5% (only 2% up from now) so base rates go to, say, 9%

mitchaa

Really2 wrote: »

Think longterm, high inflation will screw you after your 2 years. for most high inflations not have to mean matching wage inflation.

It cost me £2.5K to dump my fix 15 months ago. It worked out, but I could have looked a plonker.

I think it will anyway.

I took out a 5yr fixed in 2007. Had I taken out a 2 or 3yr fix, I would currently be enjoying an SVR rate of around 3% as opposed to the 6% I am forking out at the moment. I worked it out at around a £325pm difference. (I am in a 5/4/3/2/1 ERC so coming off early I doubt would have made much financial sense)

Come end of fixed rate in 2012, I believe rates will be back to normal by then (5% BOE) so ill step off my fixed and dont think ill benefit at all.

That's why im slightly grumpy :rotfl:

Our pay awards are based on an average of March and Aprils RPI figures, so hoping RPI is as high as it can be at that point as last years pay awards were poor.

Really2

Sir_Humphrey wrote: »

Not sooner, unless you were expecting IRs to be at 0.5% this time next year, which would only occur if deflation and recession were still with us then.

No, higher (i.e say 2% instead of 1% say.) I am still talking very low inflation and very low interest rates (as opposed to deflation and the lowest ever base rate as is the current case).

I find it disturbing how people are starting to treat 0.5% base rates as the new low and 5% as the new high.

Sorry I forecast a rate rise for last quarter now i think if inflation does not dip back under 2% we will see one first half of the year.

Still do not think we will be above 1% by the end of the year.

As for the last bit who as said that?

But I cant see over 5% base in the next 2 years+ perhaps not even 5 years.

Unless someone employs the 50 million in that time who have lost their jobs and all the debt vanishes and we don't have tax increases.

Your statement seems to be driven on emotional reasons and not looking at the world wide mess. the 70s and 80s are not yardsticks of IR if you look in to history they are far from the norm.

tomterm8

Generali wrote: »

The norm is RPI + 2-3%. More if inflation is rising and less if it is falling as a rule of thumb.

Anyone considering taking on debt should remember that and plan for what happens if the RPI hits 5% (only 2% up from now) so base rates go to, say, 9%

The only thing I have to add to this, is that when interest rates start to go up, they may go up very rapidly indeed. Having said that, it depends on how you diagnose these figures... if it is a sudden spike in M4, caused by banks suddenly lending excess reserves, then the rate spike could be quite severe. I seem to remember posting a thread a few months back, suggesting excess lending reserves were starting to make their way into the economy.

If this change is, however, diagnosed as a result of changes in import / tax, then no changes to base rates will happen for some time.

StevieJ

mitchaa wrote: »

Our pay awards are based on an average of March and Aprils RPI figures, so hoping RPI is as high as it can be at that point as last years pay awards were poor.

I think that you will likely hit the jackpot :beer:

Generali

Really2 wrote: »

Your statement seems to be driven on emotional reasons and not looking at the world wide mess. the 70s and 80s are not yardsticks of IR if you look in to history they are far from the norm.

We had 300 odd years of Gold Standard after Liz I rebased the coinage then the depression and WW2 followed by austerity. Then about 10-15 years of go-go growth and then the mess of the 1970s. A new austerity of a sort in the 1980s followed by 20 years of constrained growth.

So what is normal?

Generali

tomterm8 wrote: »

The only thing I have to add to this, is that when interest rates start to go up, they may go up very rapidly indeed.

I agree. RPI of 3% should mean base rate of 5-6%, not 0.5%, according to GIRRRT (Generali's Interest Rate Regulation Rule of Thumb).

Really2

Generali wrote: »

So what is normal?

What ever suits the economy and inflation at the time.

Personally I think we are going to be slow growing, paying off debt and high taxes.
Add to that most of the world will be also i do not think we are entering a time of high IR/inflation.

I think we may be entering a period of below average IR.

Personally I think the average Base to be around 5.5-6%.

StevieJ

Generali wrote: »

I agree. RPI of 3% should mean base rate of 5-6%, not 0.5%, according to GIRRRT (Generali's Interest Rate Regulation Rule of Thumb).

I like your sig Gen, my favourite was

"I don't want to belong to any club that will accept people like me as a member."

Generali

Really2 wrote: »

What ever suits the economy and inflation at the time of time.

Personally I think we are going to be slow growing, paying of debt and high taxes.
Add to that most of the world will be also i do not think we are entering a time of high IR/inflation.

I think we may be entering a period of below normal average IR.

Personally I think the average Base to be around 5.5-6%.

I agree if QE ends. AIUI, you have to have QE if base rates are well below Gilt yields as otherwise banks can just buy Gilts and enter into repo agreements with the BoE and the BoE runs out of money.