OECD warns UK rates may have to go up

Thrugelmir

Really2 wrote: »

TBF I do not think I am entitled to a cheap mortgage, with the debt in the system, slack, taxes etc growth will be slow.
I can not really see rates going up that fast or high TBH for a long time.

As the future unfolds. BOE base rate may only directly affect those whose mortgage or borrowing is directly linked. The international money markets may well determine interest rates in terms of the rate that money will lent at.

The banks themselves will struggle to raise retail deposits if future Government gilt auctions reach 5% yields.

Money doesn't just come out of a hole in the wall. As many seem to believe. For every borrower there is a lender.

Thrugelmir

lemonjelly wrote: »

I agree that the BoE have been fairly consistent. However I can't help but feel that rate rises are possible this year. We have apparently turned the corner, avoided the double dip, & are allegedly growing faster than other economies. That = inflation to me (even though we will continue to see wage freezes I feel).

Goverment spending in qtr 4 of 2009 was 2.2% higher than qtr 4 of 2008.

So the growth is in part fuelled by amassing more debt. Hence why the recovery is extremely fragile.

Degenerate

lemonjelly wrote: »

I agree that the BoE have been fairly consistent. However I can't help but feel that rate rises are possible this year. We have apparently turned the corner, avoided the double dip, & are allegedly growing faster than other economies. That = inflation to me (even though we will continue to see wage freezes I feel).

But how much inflation? Bear in mind that the recent spike in inflation was accounted for by exceptional factors, overall it's still a deflationary environment out there. Our trading partners in Euro-zone are not doing so well and there is more trouble on the horizon. These inflationary pressures you speak of may be what we need to keep us out of deflation, just as aggressive monetary policy has for the last year.

lemonjelly

Degenerate wrote: »

But how much inflation? Bear in mind that the recent spike in inflation was accounted for by exceptional factors, overall it's still a deflationary environment out there. Our trading partners in Euro-zone are not doing so well and there is more trouble on the horizon. These inflationary pressures you speak of may be what we need to keep us out of deflation, just as aggressive monetary policy has for the last year.

Don't really disagree with much of anything you say here....


Errr, which kinda puts me in a position...;)

Actually in my initial post I was playing devils advocate a little. I agree, other economies are really struggling, & I feel our "gains" are being somewhat overplayed.

& I still maintain that issues such as our consumer debt issues have yet to hit the fan.

That said, certain commodities (eg petrol) continue to creep up, & will affect inflation, as almost everything is either made by, or transported by oil.

In summary - I haven't a clue!:):o

Thrugelmir

Degenerate wrote: »

But how much inflation? Bear in mind that the recent spike in inflation was accounted for by exceptional factors, overall it's still a deflationary environment out there. Our trading partners in Euro-zone are not doing so well and there is more trouble on the horizon. These inflationary pressures you speak of may be what we need to keep us out of deflation, just as aggressive monetary policy has for the last year.

China is acquiring raw material commodities and consuming increasing quantities of oil as its internal market consumption continues to grow. As the UK has little in the way of commodites together with diminishing oil and gas output then cost pressures will come to bear. Not helped by sterling which is still overvalued according to a survey of international fund managers (64%).

Degenerate

Thrugelmir wrote: »

Not helped by sterling which is still overvalued according to a survey of international fund managers (64%).

Sterling is significantly undervalued in PPP terms. Not sure why I should care what a bunch of fund managers think, but anyway if they trade on that basis they will help to keep it lower and maintain our exchange rate advantage.

Thrugelmir

Degenerate wrote: »

Sterling is significantly undervalued in PPP terms. Not sure why I should care what a bunch of fund managers think, but anyway if they trade on that basis they will help to keep it lower and maintain our exchange rate advantage.

Whilst you may not care. These people do have an impact on UK exchange rates, sale of Government debt and equity markets for example.

Advantage in what way? Businessess will increase profitability before volume in the main. Increased production capacity requires capital investment.

The main benefactors of falling exchange rates will be the international banks.

tomterm8

lemonjelly wrote: »

Realistically I can see small(ish) rises on the horizon. Perhaps 2-2.5% by year end?

You've got to figure in the fact that there has already been substantial monetary tightening, in that QE is over (depends who you ask, but I'd say that this is equivalent to a couple of percentage points on bofe rates).

Plus there is going to be a substantial fiscal tightning.

To be honest, I think the risks are still to the downside once we get over the current blip. I would predict we will not see any increase in bank rates this year. I think when bank rates go up, they will go up fast, however.