5 Reasons Rates Will Stay Low for Years....

HAMISH_MCTAVISH

There are five reasons why rates will stay low this year and then rise less than Goldman and others expect next year.

First, recovery is far from assured, which means that the spare capacity in the economy could remain unfilled for the foreseeable future. The reversal of the VAT cut, the end of subsidised car sales, falling consumer confidence, disappointing recruitment data and gloomy comments from the likes of the British Chambers of Commerce all make a double-dip recession more than a trivial possibility this year.

Second, for reasons which are unclear, unemployment has responded less quickly to each successive recovery in recent decades. I have seen it suggested that today's rock bottom US interest rate would still be justified if unemployment fell from the current 10pc to 6pc, and that is some considerable way off.

Third, in the UK in particular, fiscal policy will, from the summer onwards, exert significant downward pressure on the economy. Desirable as spending cuts and tax rises are from the perspective of restoring the health of the public finances, the impact on demand will be deflationary. The British economy neither needs nor can bear both fiscal and monetary tightening at the same time.

Fourth, policy-makers are terrified of repeating the mistakes of 1930s America and 1990s Japan. Cutting off stimulus too early led, in both cases, to very rapid retreats into recession. No one wants to make that error again.

The final reason to expect rates to stay low is that the overhang of debt in both Britain and America is so great that the authorities will be able to snuff out any inflationary impulses with much lower rates than was the case in earlier recoveries.

http://www.telegraph.co.uk/finance/comment/tom-stevenson/7003135/Interest-rates-the-lower-the-better.html

Low rates for years is by far the most probable outcome.

Worth noting that the author, a professional investment commentator for Fidelity and The Telegraph, has put his money where his mouth is and just taken out a tracker mortgage.
:beer:

Mr.Brown_4

HAMISH_MCTAVISH wrote: »

Worth noting that the author, a professional investment commentator for Fidelity and The Telegraph, has put his money where his mouth is and just taken out a tracker mortgage.

I felt the same way about a horse - Lucky Chancer it was called - Doncaster 3:30 last Thursday. Beautiful fetlocks, and a real shine to it's coat. Convinced I was - so I too put my money where my mouth was.

What?

You want the result? I'll let you know, it hasn't come in yet.

nearlynew

HAMISH_MCTAVISH wrote: »

Worth noting that the author, a professional investment commentator for Fidelity and The Telegraph, has put his money where his mouth is and just taken out a tracker mortgage.

What a guy.


Not sure how McTittish knows he has taken out a tracker though.

ess0two

Mr.Brown wrote: »

I felt the same way about a horse - Lucky Chancer it was called - Doncaster 3:30 last Thursday. Beautiful fetlocks, and a real shine to it's coat. Convinced I was - so I too put my money where my mouth was.

What?

You want the result? I'll let you know, it hasn't come in yet.

Probably because all racing was off due to the snow:T

Mr.Brown_4

ess0two wrote: »

Probably because all racing was off due to the snow:T

It's an image, a parable if you like. Not to be taken literally - it highlights the twin struggles of forecasting and believing in a world that can be quite cruel. The horse stands for the economy, the result has yet to appear, my bet may have been misguided but we don't know the result yet.

As for your snow. Maybe that's a black swan.

BuyToLie

Mr.Brown wrote: »

I felt the same way about a horse - Lucky Chancer it was called - Doncaster 3:30 last Thursday. Beautiful fetlocks, and a real shine to it's coat. Convinced I was - so I too put my money where my mouth was.

What?

You want the result? I'll let you know, it hasn't come in yet.

I was in magaluf in 2004 on a stag doo and next to the beach was a bookies with a bar in it. I drank 10 pints of san miguel and just before I returned to my sunbed I put a bet on a horse called 'Boycie' It was 50-1 and I put 20 euros on it. It won. They gave me 800 euros and vouchers for drinks totalling 200 euros. I gave the vouchers to people sunbathing on the beach. I was hammered that day.

andykn

Mr.Brown wrote: »

It's an image, a parable if you like. Not to be taken literally - it highlights the twin struggles of forecasting and believing in a world that can be quite cruel. The horse stands for the economy, the result has yet to appear, my bet may have been misguided but we don't know the result yet.

As for your snow. Maybe that's a black swan.

But sadly you don't stand for a horse racing professional. The sort that do make money by winning races.

DaddyBear

HAMISH_MCTAVISH wrote: »

http://www.telegraph.co.uk/finance/comment/tom-stevenson/7003135/Interest-rates-the-lower-the-better.html

Low rates for years is by far the most probable outcome.

Worth noting that the author, a professional investment commentator for Fidelity and The Telegraph, has put his money where his mouth is and just taken out a tracker mortgage.
:beer:

I thought the UK was racing out of this recession Hamish. Are you saying now that you don't think we are?

treliac

Less and less will low interest rates hold down mortgage rates though. Many of us never had our rates reduced much in the first place. Lenders are paying little heed to BoE base rates in setting their mortgage rates and newer trackers are quite a few points above, so any rise...?

Many will be locked into their lenders SVRs, with no room to manoeuvre, once they come off fixed term deals.

It's increasingly out of the control of the Bank of England or the government.

chucky

treliac wrote: »

Less and less will low interest rates hold down mortgage rates though. Many of us never had our rates reduced much in the first place. Lenders are paying little heed to BoE base rates in setting their mortgage rates and newer trackers are quite a few points above, so any rise...?

Many will be locked into their lenders SVRs, with no room to manoeuvre, once they come off fixed term deals.

i agree with the first part but not the bold parts - apparently it's only less than 8% of property (last July) was in negative equity. that doesn't include 6 months of rises in value that would make that number lower. the numbers are not that high.

HAMISH_MCTAVISH

treliac wrote: »

Many will be locked into their lenders SVRs, with no room to manoeuvre, once they come off fixed term deals.

Not to mention most of the mainstream lenders SVR's are actually quite attractive anyway. Lloyds/C&G/Nationwide have a cap of base + 2%, which is as good as the best trackers available today.

It's increasingly out of the control of the Bank of England or the government.

No it isn't.

The BoE will raise rates to target inflation, and for no other reason.