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

F_T_Buyer

free4440273 wrote:

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

With regards to banks/building societies not increasing saving rates, it is because they are not using savers money as deposits to lend on. Currently, the banking system has approx £500billion reliant on money markets as their reserves.

Laymans terms: They are not attracting savers such as you and me to deposit money with them, which they the lend out as loans (using fraction reserve banking). They are now borrowing that money from the markets, who borrow from places like Japan, where rates were near 0%.

The problem with this is they are now reliant on th markets, so when the markets demand higher rates they have to increase rates to joe public to maintain their profit margins. Markets have been generally demanding a higher premium as where they borrow money from (Japan) is now more expensive. This is know as the carry trade, and will may lead to a credit crunch without the Bank of England increasing rates at all.

I'm sure savers will have their day, but if you understand whats going on financially and economically you can benefit from it. That's why approx half of my wealth is no longer in sterling!

BobProperty

sanfrancisco wrote:

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

That plus in pure number terms the UK has the highest interest rates except for the US and Australasia I think.
Having seen Tony Congdon on some TV prog several years back I think he typifies what someone once said of economists: It's the only job where you can always be wrong without getting sacked.

Joe_Bloggs

Central banks can apply any of the tricks employed by any other central bank. What one bank does another can follow. Hence the banks do not act in isolation of each others policies.
So much of the work of a central bank is done by what is said rather than what is actually done. Talk of doing something or not doing something may have the desired effect.

Japan's Central Bank has decided to raise alleged key interest rates from 0% to 0.1% after six years. Savers may still get 0.001%. What does this say about the ability of interest rates to control an economy ?
J_B. (Nice one Fukui.)