Bank of England Base Rate - When will it go up?

Joe_Bloggs

The B of E is allegedly responsible for the level of Consumer Price Index inflation. This narrow measure of inflation went up due to fuel prices. The consumer impact of these domestic fuel prices has yet to fully ripple through households in these Summer months. How will a change of the Bank of England base rate change the key cause of extra inflation in the economy, the global oil price. What effect would an interest rate change have on those who are responsible for global oil price escalation ?
J_B.

F_T_Buyer

courtjester wrote:

Not that I know anything on this subject:-

... but did I not hear that the one of three at the Bank of England, who always voted in the minority to increase rates, recently died and so one factor to consider may be the attitude of his incoming replacement....

In addition, talk of interest rates going up around the world - is that not because interest rates in countries like the US have in fact been too low (2%?) for some time, hence need a re-alignment with reality, which would nto necessarily mean that UK rates have to be increased....

Yes, it was David Walton who sadly died.

The MPC need two replacements, and they have now been decided. They are Andrew Sentance and Tim Besley.

Andrew Sentance has been voting in the Shawdow MPC (a dummy MPC who fictionally decide what interest rates should be and why) and has voted twice this year to reduce interest rates.

This is ultimately the reason he was chosen by Gordon Brown, as he is a dove (i.e. a tendancy to reduce rates than to raise). It might prevent rates increasing soon, but global factors will force the hand of the MPC!

http://news.bbc.co.uk/1/hi/business/5176146.stm

F_T_Buyer

Joe_Bloggs wrote:

The B of E is allegedly responsible for the level of Consumer Price Index inflation. This narrow measure of inflation went up due to fuel prices. The consumer impact of these domestic fuel prices has yet to fully ripple through households in these Summer months. How will a change of the Bank of England base rate change the key cause of extra inflation in the economy, the global oil price. What effect would an interest rate change have on those who are responsible for global oil price escalation ?
J_B.

Don't forget the Bank of England's remit is also financial stability, which they seem to be ignoring.

If interest rates go up, sterling would strengthen as more foreign countries would want to hold sterling as it is has a higher yield. As sterling rises against other currencies it would mean all imports, e.g. as oil, gas, DVD players etc, would be cheaper, hence bring inflation back down to target of 2%.

If rates went down the opposite would happen, and imports would be more expensive, hence drive up inflation.

Although, they are far more circumstances than this. If interest rates are high, it encourages people to save. If it's low, it encourages people not to save, and indeed borrow to spend. The more people spend, the more demand there is for a number of finite goods, if this is the case the price of the goods goes up (and vice versa).

For companies the borrowing is important, as companies create wealth (mainly manufacturing). So, the low the interest rate encougaes business investment.

Money markets predict this, and as I have stated the markets predict rates will increase at least once in the next 9 months. If this does not happen, sterling will be sold off (as they can invest in another country), hence sterling falls causing inflation. This is why the money markets (or yield curve) is a very good predictor (although it does flucuate alot, but you can spot the trend).

Also, if other countries raise rates (as they have been) money will move to those countries, so the UK will have to [eventually] follow suit. Especially as we rely on other countries financing out debt!!!

Coming back to financial stability, there is a article you should read: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/07/12/cndebt12.xml

And follow on comments on that article: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/07/12/ccom12.xml#3

Here's another about interest rates and the global economy: http://www.timesonline.co.uk/article/0,,2095-2271824,00.html

Gorgeous_George

I think while we have a Labour Government, interest rates will be in the 4-5.75% band at least for the next 5 years or so

I don't expect rates to rise too drastically. The knock-on effect on housing would be huge - moreso than in the 80s/90s. If IRs were ever to reach 10% or more, it would be after many small increases over 15-20 years. Anything too quick would be too damaging to the Government. There's plenty of scope to increase taxes.



GG

jonnydoe

No change this year imo

free4440273

they should raise rates. even though inflation is up, they won't raise them. i have a feeling the markets will act on their behalf, and do the dirty work for the BoE: anybody care to bet on a massive fall in sterling? which does beg the question - what the hell is holding up sterling anyway??

sanfrancisco

free4440273 wrote:

they should raise rates. even though inflation is up, they won't raise them. i have a feeling the markets will act on their behalf, and do the dirty work for the BoE: anybody care to bet on a massive fall in sterling? which does beg the question - what the hell is holding up sterling anyway??

Sentiment...the world believes the Tony and Gordon show has created a really stable economy.

F_T_Buyer

With the money supply hitting 13.7% this month, it so obvious interest rates are far too low. That's right folks, expect the cost of things you need to keep on rising with all that new money chasing limited resources.

Even the former 'wise man' at the Treasury said rates should be 6%:

http://uk.biz.yahoo.com/060706/323/gg8ke.html

Like I have said many times, inflation is in the system.

grade15

unfortunately that is what Tony n Gordon believe...and we suckers have to follow n listen!!

I think that the base rate will rise in sept..just as kids n univ start..
with all the rushing around..slip it up a notch and no one will notice..!
what makes me fuming is mortgage companies n banks have set their rates up ..to high levels and too soon even before the B.O.E. have decided on anything..its been 8 months at 4.5%
and i guess banks n building societies will be slow to increase the rates on their intrests.!!

free4440273

F_T_Buyer wrote:

With the money supply hitting 13.7% this month, it so obvious interest rates are far too low. That's right folks, expect the cost of things you need to keep on rising with all that new money chasing limited resources.

Even the former 'wise man' at the Treasury said rates should be 6%:

http://uk.biz.yahoo.com/060706/323/gg8ke.html

Like I have said many times, inflation is in the system.

this is what i find both unfair and disconcerting: as a saver, i would like rates to rise, and they should, deservedly so. sorry if this sounds selfish, but it is very annoying when you see building societies, even the likes of nationwide, 'deliberately' hold savings rates whilst raising mortgage rates. i realise i have said nothing original here! i know many people here feel the same way. but, rest assured, savers will have their day come 2007/8 and beyond