No base rate rises for at least a year.. maybe 2 or 3 years

Harry_Powell

JayScottGreenspan wrote: »

The likliest two reasons, IMO:
* Other central banks put their rates up a bit. We'd have to do likewise or face the pound weakening further, which would import inflation.
* If the inflation outlook is not nice.

I don't think we'll have to worry about using IRs to hold rampant economic growth to a sustainable pace.:rotfl:

lol, I agree with you about not needing to hold back rampant economic growth!

I also think that we won't have an inflation issue either. There are several ways to control inflation, raising interest rates being one of them (monetary policy), another method is to raise taxes (fiscal policy) and we're already doing that to repay all the debt.

Our main trading partner is the EU and they're as knackered as we are, so I don't see the ECB putting up rates for a while yet.

Thrugelmir

Harry_Powell wrote: »

I already know, I'm waiting for the person who stated that it's a requirement for IR rises to explain why. I've heard it so often from 'bear' gang members that rates should/will rise dramatically, yet they never say why this is the case. I wanted to enter into a discussion. No response though .

Are you refering to BOE base rate or the cost of borrowed money on the open market for mortgages etc?

Thrugelmir

Harry_Powell wrote: »

I also think that we won't have an inflation issue either. There are several ways to control inflation, raising interest rates being one of them (monetary policy), another method is to raise taxes (fiscal policy) and we're already doing that to repay all the debt.

Two main factors in rising inflation is currently food and energy costs.

Rising taxation will supress domestic demand and put more pressure on an export led recovery to speed up economic growth. Which isn't looking so promising if this is the case "Our main trading partner is the EU and they're as knackered as we are".

Really2

Thrugelmir wrote: »

Two main factors in rising inflation is currently food and energy costs. .

Not 100% correct it is travel fuel costs that have inflated.
Gas and electricity are both cheaper than this time last year.

chucky

Harry_Powell wrote: »

I also think that we won't have an inflation issue either. There are several ways to control inflation, raising interest rates being one of them (monetary policy), another method is to raise taxes (fiscal policy) and we're already doing that to repay all the debt.

you can also add the removal of the QE 'cash' from the economy as a way to tackle inflation - it avoids having to increase interest rates.

chucky

Thrugelmir wrote: »

Two main factors in rising inflation is currently food and energy costs.

these would only be imported inflation - rasing interest rates would probably not be the most effective way of dealing with this type of inflation.

Harry_Powell

Thrugelmir wrote: »

Are you refering to BOE base rate or the cost of borrowed money on the open market for mortgages etc?

The whole thread is about BoE base rates.

Harry_Powell

Thrugelmir wrote: »

Two main factors in rising inflation is currently food and energy costs.

Rising taxation will supress domestic demand and put more pressure on an export led recovery to speed up economic growth. Which isn't looking so promising if this is the case "Our main trading partner is the EU and they're as knackered as we are".

I'm confused about the point you're making. Are you agreeing or disagreeing that BoE rates won't increase much over the next 3 years?

JayScottGreenspan

Harry_Powell wrote: »

I also think that we won't have an inflation issue either. There are several ways to control inflation, raising interest rates being one of them (monetary policy), another method is to raise taxes (fiscal policy) and we're already doing that to repay all the debt.

I suppose it depends what is causing inflation.

If it's boom time, if domestic demand is fueling inflation (too much money chasing too few goods) then raising taxes is very effective at controlling it.

If you're economy is in the gutter, and if inflation is due to a weakening currency, fiscal policy won't be as effective.

Suppose you own a company buying in Euros and selling in GBP. You are losing money because of the weak pound. Your only option is to put up prices. Fiscal tightening which strips your market of a few customers won't help.

Harry_Powell

JayScottGreenspan wrote: »

I suppose it depends what is causing inflation.

If it's boom time, if domestic demand is fueling inflation (too much money chasing too few goods) then raising taxes is very effective at controlling it.

If you're economy is in the gutter, and if inflation is due to a weakening currency, fiscal policy won't be as effective.

Suppose you own a company buying in Euros and selling in GBP. You are losing money because of the weak pound. Your only option is to put up prices. Fiscal tightening which strips your market of a few customers won't help.

What sort of inflation could be caused by a weakened currency, yet not controlled by fiscal policy. Only essentials such as fuel & certain foodstuffs, raw materials, etc, many of which have an amount of taxation included in their price - petrol is a good example, isn't something 90% of its price due to tax?

Rather than the government increasing interest rates to control imported inflation, which would be a hammer to crack a nut, it could simply reduce or increase taxation on the items causing inflation.