BOE Interest Rates Mystery?

chunky02

I am looking at remortagaging at the moment and as a mere layman i was wondering why there is such secrecy, uncertainty and mystery over what the BOE do with interest rates? Surely a clear process where they said we are rasing to 1% but keeping it there for 6 months would allow people to plan properly and manage their savings / mortagages better?

I await to be enlightened, although the cynic in me assumes it must be done this way because it makes most money for the government / banks like this!

inspector_monkfish

they can't just set things up for a 6mth plan, as they just don't know whats around the corner. They have to keep check of many things on a monthly basis, such as inflation/deflation, retail sales, industry input/output, housing markets etc...., so they prefer to try and fine tune things on a montly basis.

VIGILANT22

No secrecy etc!!!!??...

This may help you...
http://www.bankofengland.co.uk/monetarypolicy/how.htm

chunky02

Yet i am expected to plan for 1, 2, 3years and beyond based on the fact they don't know what will happen next month?

Surely if they fixed things for a fixed period then they would know what is going to happen in that period as would everybody else and i would imagine things would therefore be more stable?

VIGILANT22

You didn't read the link then?

chunky02

Yes, but according to IM's first reply the experts at the BOE don't know what is going to happen in a month so what chance do I have as a mere layman?

Gorgeous_George

Then choose a fixed rate mortgage. You will know your budget for 2,3 5 or 10 years.

Even if the BofE set rates for 5 years, lenders would not be able to offer any further guarantees because they don't borrow money from the BofE.

Also, other factors help to determine the rate offered - including the risk that some people will not understand the responsibilty and commitment that a mortgage brings to the party and may default on the loan.

GG

inspector_monkfish

chunky02 wrote: »

Yet i am expected to plan for 1, 2, 3years and beyond based on the fact they don't know what will happen next month?

Surely if they fixed things for a fixed period then they would know what is going to happen in that period as would everybody else and i would imagine things would therefore be more stable?

BOE interest rate is not there purely as a guidance for mortgages.

This is nothing new, its always been this way. Just that people pay more attention to BOE nowadays.

kmmr

chunky02 wrote: »

Yes, but according to IM's first reply the experts at the BOE don't know what is going to happen in a month so what chance do I have as a mere layman?

As someone said - you have the choice to lock in rates. And to an extent lock in costs, like fixed utility bills and stuff. The BoE doesn't! They are influenced by all our behaviours.

It's not a complete mystery, its just complicated and influenced by many factors. It's not something you can learn in 5 minutes, so people seem to feel that it's all just made up!

redpete

chunky02 wrote: »

I await to be enlightened, although the cynic in me assumes it must be done this way because it makes most money for the government / banks like this!

As others have said, there is no secrecy or mystery, the decisions and reasoning for any changes, or no change, are published each month. It can't be set for months in advance because of the complexities of the global economy and the many dynamic factors that influence it.

Fully planned economies have been tried in the past and failed (e.g. the Soviet Union).

Frozenace

I'm on a 3 year tracker, started last year, although I'm aiming at overpaying 10% every year for 3 years to offset any increase in interest rates.