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

Thrugelmir

HAMISH_MCTAVISH wrote: »

Only if you suppose that the bank will raise rates to combat an expected and predicted temporary spike.

The BOE may. If it was necessary.

chucky

Thrugelmir wrote: »

The BOE may. If it was necessary.

but it's not - the inflation spike was expected

HAMISH_MCTAVISH

Thrugelmir wrote: »

The BOE may. If it was necessary.

Which they obviously don't believe it will be. Otherwise they would not have pointed out the spike well in advance, and stated they believe it will be temporary.

HAMISH_MCTAVISH

chucky wrote: »

but it's not - the inflation spike was expected

Expected, predicted, and of course, temporary in nature.

Thrugelmir

chucky wrote: »

but it's not - the inflation spike was expected

Though much higher than forecast. :eek:

But while many had been expecting a sharp rise in CPI the extent of the overshoot is adding to concern that measures introduced to support the economic recovery could lead to a sharp, unmanageable and sustained period of inflation.
Bank of England Governor Mervyn King has repeatedly said it is easier to dampen inflation if it threatens to get out of hand than to pull the economy out of the doldrums if too little stimulus had been implemented.
Howard Archer, chief UK and European Economist at IHS Global Insight, described the data as 'a nasty shock.'
'Even allowing for the unfavourable statistical distortions coming from sharply falling oil prices a year ago and the December 2008 VAT cut, the data will not go down at all well at the Bank of England.
'While the Bank of England has been expecting inflation to spike up, December's increase was clearly way more than the bank expected,' he said.
He said CPI averaged 2.1% in the fourth quarter of 2009, well ahead of the 1.85% level forecast by the Bank of England and will peak at a significantly higher level than the 3% the bank forecast in November.
While Archer and others think inflation will ease in the latter part of the year, he said the danger is that inflation will prove to be stickier than expected and will not fall back as quickly or as far as expected thereafter.
It now seems certain that the Bank of England will call time on its quantitative easing programme at February's Monetary Policy Committee meeting and raises the prospect of an earlier than expected rise in interest rates.

http://www.citywire.co.uk/personal/-/news/money-property-and-tax/content.aspx?ID=377495&ViewFull=True

chucky

Thrugelmir wrote: »

Though much higher than forecast. :eek:

a one month and not even a two month rise will force rates upwards - there are more important issues to address before inflation starts to hurt.

control of the money supply will be used before rates move upwards.

Thrugelmir

chucky wrote: »

a one month and not even a two month rise will force rates upwards - there are more important issues to address before inflation starts to hurt.

control of the money supply will be used before rates move upwards.

Initially turning off the QE tap will impact. As the BOE will no longer be buying the UK's debt. Interesting (totally unpredictable) times ahead.

ManAtHome

Expected inflation takes money out of your pocket pretty much the same as unexpected inflation.

Spartacus_Mills

HAMISH_MCTAVISH wrote: »

Only if you suppose that the bank will raise rates to combat an expected and predicted temporary spike.

http://www.telegraph.co.uk/finance/economics/6941328/Bank-of-England-may-raise-interest-rates-as-soon-as-March-leading-economist-predicts.html

Published: 6:00AM GMT 07 Jan 2010


Simon Ward of Henderson New Star reckons that in addition to ending the radical programme of quantitative easing, members of the Bank's Monetary Policy Committee will begin voting to raise interest rates from 0.5pc in February.
The MPC today gave its first decision on interest rates of 2010, keeping them at 0.5pc. The Bank slashed interest rates after the collapse of US investment bank Lehman Brothers sent shockwaves through the financial system and wider economy.



Mr Ward's forecast is based on his 'MPC-ometer', which uses a range of inputs including the latest figures on economic activity, inflation and financial market conditions, to predict what the MPC will do.
Signs of a change in the MPC's stance will, according to Mr Ward, first emerge in February when the Bank's next Inflation Report will be published. The Bank's November report surprised many in the City with its forecasts for strong growth and rising inflation over the next two years, marking a quick recovery from the country's worst peacetime recession since the 1930s. The Bank's projections s
Inflation will be at 2.35pc in two years time should the Bank leave interest rates at 0.5pc.
"With activity and inflation news generally beating expectations since November, the February Report may project an even larger deviation of the two-year-ahead forecast from target if the current policy stance is maintained," said Mr Ward.
The Henderson economist was the only City analysts to forecast the Bank's surprise decision to raise interest rates to 5.25pc in January 2007

stueyhants

They will remove QE before any IR rise imo. Low IR are what is keeping the economy from crashing, I know pressure is starting to mount on the BoE to raise rates in the face of inflation. However they can just announce they are removing QE and that will buy them 6 months of 0.5 rates and the markets will be satisified with that.