Interest rates will go up quicker than anyone expects, ex-BoE officials warn

carolt

http://www.telegraph.co.uk/finance/economics/7925564/Interest-rates-will-go-up-quicker-than-anyone-expects-ex-Bank-of-England-officials-warn.html

Interest rates will have to rise earlier and more sharply than expected to keep inflation under control, two former Bank of England policymakers have warned.

Addressing Fathom Financial Consulting’s Monetary Policy Forum, Sir John said: “I am expecting a recovery – when that is strongly established I’d expect rates to start rising faster than the market currently expects. I wouldn’t be at all surprised to see interest rates at 2.5pc a year from now.”

Markets expect rates to be between 1pc and 1.5pc this time next year, according to Consensus Forecasts. The respected Ernst & Young ITEM Club has predicted they will not rise until January 2014.

Sir John added: “I think the Bank will have learned a lesson from the Greenspan years after the dotcom boom when the US was very slow to raise rates back to normal levels. When the Bank thinks recovery is established they will want to normalise quite quickly.”

Mr Goodhart is less optimistic about the economy but fears the Bank will have to raise rates to tame inflation as food prices soar. The price of bread is poised to climb after wheat futures rose in July at their fastest monthly rate in 51 years, partly a result of wildfires in Russia’s fertile Volga River region. Data from the British Retail Consortium (BRC) today shows that food inflation increased from 1.7pc in June to 2.5pc in July, fuelling Mr Goodhart’s fears.

Dirk_Rambo

when they start going up theres going to be no stopping them. the crap is really going to hit the fan then

bendix

Good.

I'm looking forward to higher interest rates.

Really2

So things are going to better than expected, must mean we are going to see high wage inflation etc.

Good news for everyone rates are going up as the country is not in as much trouble as thought. (cant see them wanting to causue a recession again so these people must see the economy as vary stable to deal with the increases.)

carolt wrote: »

t fears the Bank will have to raise rates to tame inflation as food prices soar. The price of bread is poised to climb after wheat futures rose in July at their fastest monthly rate in 51 years, partly a result of wildfires in Russia’s fertile Volga River region.

On wheat that is higher because of the Russian fires (there is no partly in it IMHO), no increase on base rate is going to stop that inflating.

RenovationMan

I'm sorry, but I just cant see it. I know I have a VI in low interest rates, but that doesnt blind me to what is happening in the economy and how much the coalition is tightening fiscal policy (i.e. tax rises). Interest rates are raised to reduce people's spending power, which is exactly what tightening fiscal policy does. Why then would they also need to tighten monetary policy (raise interest rates) and risk a deflationary economy?

Really2

I think the ex members would put rates up to fight the future inflation they perceive.

But what matters is what the current members see and what they are hinting.

bendix

RenovationMan wrote: »

I'm sorry, but I just cant see it. I know I have a VI in low interest rates, but that doesnt blind me to what is happening in the economy and how much the coalition is tightening fiscal policy (i.e. tax rises). Interest rates are raised to reduce people's spending power, which is exactly what tightening fiscal policy does. Why then would they also need to tighten monetary policy (raise interest rates) and risk a deflationary economy?

To control inflation. Which is rising.

Blacklight

Dirk_Rambo wrote: »

when they start going up theres going to be no stopping them. the crap is really going to hit the fan then

Indeed it will.

Most new buyers will be forced to pay more of their monthly income to repay their mortgage even with lower house prices.

When they realise that a six year wait has ended up with them getting what they want and being more out of pocket I think it really will kick off.

chucky

bendix wrote: »

To control inflation. Which is rising.

do you think they may just ignore inflation for now?

if they do raise rates the Govt will be paying more on the debt that they're paying interest on.

what's the greater pain - inflation or paying higher interest on Govt debt?

Graham_Devon

Blacklight wrote: »

Indeed it will.

Most new buyers will be forced to pay more of their monthly income to repay their mortgage even with lower house prices.

When they realise that a six year wait has ended up with them getting what they want and being more out of pocket I think it really will kick off.

Are you STILL pedalling this?

If I actually made this point you pedal into a new topic to discuss it, would you stick around? Or would you just leave to pedal the same line in another thread? As per usual.

Blacklight

Of course inflation also has the benefit of making the deficit worth less by making every thing else worth more.