BoE: Gloomy Outlook

Malcolm.

Generali wrote: »

I've never felt that 'inflating our way out of trouble' will work, given the levels of debt around at the moment. If household budgets are stretched then inflation will finish some off. The reason? Pay rises come but once a year but inflation spreads itself across the year.

I agree, it won't work, but it should help. Depreciating the currency helps avoid a Spanish or Greek type scenario - too much debt, exporters uncompetitive and higher unemployment (not many in work to help repay the debt).

StevieJ

michaels wrote: »

Forecast rising prices and weak economy - how does that wrok? I guess the answer is imported and govt imposed (eg vat) inflation. Will interest rate increases have any impact on inflation from these sources?

I guess they will on imported as they would push Sterling upwards so will reduce this type of inflation.

Wookster

vivatifosi wrote: »

I don't see how the BoE can be responsible for holding down inflation if the government is going to put up VAT by 2.5%.

This is quite similar (though not identical) to the previous government who had massively inflationary policies (running significant deficits) coupled with low interest rates.

neverdespairgirl

Percy1983 wrote: »

It does annoy me as a FTB (still saving) that mortgage rates on new deals show no relation to the interest rate.

they do pay some regard. With a good deposit, you can get about 2.2% fixed for 2 years, and just under 4% for 5 years

Herbie_Hancock_I_wish

It is a dramatic difference from Thatchers days. I think inflation might be a bit higher than we are lead to believe. Imagine paying around £600 pound on a 60k mortgage in the early 90`s. Bit of a worry.

Malcolm.

Percy1983 wrote: »

It does annoy me as a FTB (still saving) that mortgage rates on new deals show no relation to the interest rate.

Cheap credit is gone. No longer are there products which track under the base rate, or just above. And I can't see these products returning.

StevieJ

neverdespairgirl wrote: »

they do pay some regard. With a good deposit, you can get about 2.2% fixed for 2 years, and just under 4% for 5 years

Sounds like you are ready to pounce.

Wookster

Generali wrote: »

That's exactly what I'm saying. One off changes in the price level caused by oil prices rising, electricity costs halving or whatever aren't inflation or deflation, it's the persistent tendency that matters.

How about a series of one offs? Doesn't that qualify as inflation? We've had devaluation of the pound, VAT rises, energy rises etc.

Generali wrote: »

In 2000 I was on £30,000 with Mrs Generali on about £18,000. I reckon a young couple starting out in London now on £48,000 between them would have about the same living standard we did back then. They'd probably make different choices based on relative prices but in absolute terms they'd be in much the same position we were.

I have to disagree with this - living costs basics such as housing costs/ energy & transport have increased quite significantly in the last 10 years. Yes, some things are cheaper I think - clothing, thanks to TK Max/ Primark, but this doesn't compensate for just how much more pricey basics have become.

neverdespairgirl

StevieJ wrote: »

Sounds like you are ready to pounce.

Pounce is an overstatement.

However, we are looking very seriously at the moment.

For buyers in our particular circumstances, now could very well be a great time to buy.

Generali

Wookster wrote: »

How about a series of one offs? Doesn't that qualify as inflation? We've had devaluation of the pound, VAT rises, energy rises etc.

As I was saying before, RPI as it relates to measuring inflation rather than changes in the cost of living is imperfect so ultimately you can only use qualitative ways to measure. I guess it comes down to your judgement of what has caused a price rise as to whether that's inflation. A drought in Russia isn't inflationary without the wage/price cycle I described. A continually falling pound? Well that's more difficult as you can see a cycle where pound falls => rising prices locally but lower returns for foreign investors => foreign investors withdrawing money = pound falling.

Much as it would be nice to be able to point at things and be able to say with certainty what they are, sadly economics doesn't work like that. Economics is basically at the stage that astronomy was in Greek times, people could see what was going on and have a stab and predicting what would happen, sometimes quite successfully but they couldn't say why and someimes they were just plain wrong.

Wookster wrote: »

I have to disagree with this - living costs basics such as housing costs/ energy & transport have increased quite significantly in the last 10 years. Yes, some things are cheaper I think - clothing, thanks to TK Max/ Primark, but this doesn't compensate for just how much more pricey basics have become.

Clothing has got a lot cheaper as has technology (how much would a 25" CRT TV cost in 2000? Today you can get one for how much? £200? I have 3 large, widescreen 2nd hand CRT TVs which between them cost me $0 and I had the same in the UK!). The 'tablet PC' I type this on probably has better performance than the laptop I bought in 2005 yet while that cost me £1,000 this set me back $300.

Much food seems to have gotten cheaper to me too. Travel by train and car has increased in price but bicycle prices have come down a lot, again due to technology, and that's my preferred mode of transport. The price of alcohol in pubs is up but is probably flat or down in supermarkets.

House prices have shot up obviously but what about mortgage payments? Probably not so clear cut there.