Will Interest Rates stay extremely low for 5 Years?

worldtraveller

Radiantsoul wrote: »

There aren't really many inflationary forces that would justify higher interest rates. The economy will scarcely grow this year and so there will be enough spare capacity for inflation to be a minor issue for several years. The output gap must be 10% which is going to take a few years of strong growth to be closed.

I totally disagree.

I cannot understand why some people seem to be totally myopic when it comes to issues like inflation in the UK, as if it's almost totally related to what's happening in the UK economy, without any reference to the global economy.

I've feared for some time that the economists have been underestimating what the UK inflation rate will be this year, largely saying that it will be around 3% for most of the year and fall back at the end of 2010, into 2011. I think it will go to at least 5%+ and I don't expect it to fall back much, if at all, either. As for 5 years, I would expect significantly higher rates.

One of the major reasons is that I expect a general continuing weakening in Sterling this year against the USD, at a time when I also expect commodity prices to rise as other economies, especially Asia, improve, leaving the UK behind, likely falling back into recession again.

Radiantsoul

worldtraveller wrote: »

One of the major reasons is that I expect a general continuing weakening in Sterling this year against the USD, at a time when I also expect commodity prices to rise as other economies, especially Asia improve, leaving the UK behind, likely falling back into recession again.

Commodity prices will probably rise as the far East grows. However producers can use different production methods or materials. And the UK economy is quite heavily based on services, which are likely to be less impacted. I also think that commodity prices have historically not really exploded upwards and any increase is likely to be short lived as there are few real shortgages, and so higher prices are likely to encourage greater production and so ultimately bring prices back down.

I also think that if demand from the Far East drives commodity prices up it is likely to drive the price of consumer goods down. This is because these countries will be producing excess items and will not be able to sell them in their own markets.

Mr.Brown_4

Radiantsoul wrote: »

I also think that if demand from the Far East drives commodity prices up it is likely to drive the price of consumer goods down. This is because these countries will be producing excess items and will not be able to sell them in their own markets.

If the demand goes up then the price goes up, but what they are making falls in price? Because no one wants to buy the things? So why would the demand go up in the first place?

Or are they buying lots of stuff, and making lots of stuff, and then won't be able to sell it? Because we won't be able to afford it? So then they drop the price?

Meanwhile, as the commodity prices go up we just don't buy any? Or just buy a little bit of copper and stuff, and then only make a little bit of stuff which we can sell at a higher price to, er, people.

OK, I get it.

nearlynew

This thread is a load of bollox

leveller2911

All I know is as a saver I'm still bailing out f eckless borrowers,same goes for my elderly neighbours who are struggling since savings rates plummeted.......It seems to me us savers are treated like scum now..........

HAMISH_MCTAVISH

leveller2911 wrote: »

All I know is as a saver I'm still bailing out f eckless borrowers.......It seems to me us savers are treated like scum now..........

Well given the circumstances, it is now pretty clear the borrowers have been rewarded for their risk taking, and so have turned out to be prudent.

And it is the overly cautious savers who have been punished for their lack of courage, and turned out to be f eckless.

Reality becomes far clearer with hindsight.....

michaels

When will savers see through the money illusion of inflation and realise that low nominal rates are actually a boon as they avoid the tax on inflation payable with high nominal rates.

leveller2911

HAMISH_MCTAVISH wrote: »

Well given the circumstances, it is now pretty clear the borrowers have been rewarded for their risk taking, and so have turned out to be prudent.

And it is the overly cautious savers who have been punished for their lack of courage, and turned out to be f eckless.

Reality becomes far clearer with hindsight.....

Biggest load of boollox Ive read on here Hamish.The reason the country is on its knees is partly due to HPI and thats the truth of it. You can look through your Rose tinted glasses ,spout spurious statistics but you can't/won't be able to change history.The facts remain the greedy,chav like ,rich wannabees who supposedly got rich off the backs of the hardworking will been seen for what they are, in debt for life.That my friend is not wealth.......;)

How many people have negative equity, 125% mortgages, secured borrowing against their perceived HPI and yet don't have a pot to p1ss in................Thousands and thousands.......Will be interesting to see what happens to all those people who a couple of years ago bought with IO and 100-125% fixed for a couple of years or so, do you think the banks will allow them to do another IO?


Time will tell Hamish..........

Generali

worldtraveller wrote: »

One of the major reasons is that I expect a general continuing weakening in Sterling this year against the USD, at a time when I also expect commodity prices to rise as other economies, especially Asia, improve, leaving the UK behind, likely falling back into recession again.

I disagree for 2 reasons:

- A falling currency can only cause inflation if wages rise otherwise it makes living standards fall, esp in a trading nation like the UK.
- If inflation starts to rise as a result of a falling pound, the MPC will raise rates and the pound will rise again.

ManAtHome

Only a couple of years since CPI went over 3% and stayed there for most of the year (peaking at 5.2%) - MPC were pretty powerless then. Their last accurate forecast of 'flation dropping back to 2% in 2 years was around 2003 (unless they really did see the recession coming as far back as summer 2007 - q2-4 2009 was pretty much 'on target'...).