Future interest rates: what the "experts" are saying

vivatifosi

Interesting piece in the Sunday Times Money section today.

Questions six economists for their interest rate predictions at the end of 2010, 2011 and at 2015. The results were:

Peter Warburton, Economic Perspectives:

2010 1.0% 2011 2.5% 2015 7.0%

George Buckley, Deutsche Bank:

2010 0.5% 2011 1.5% 2015 5.0%

Ben Broadbent, Goldman Sachs:

2010 0.5% 2011 2.5% 2015 4.5%

Simon Kirby, NIESR:

2010 0.5% 2011 0.75% 2015 4.5%

Benjamin Williamson, CEBR:

2010 0.5% 2011 0.5% 2015 1.5-2.0%

Roger Bootle, Capital Economics:

2010 0.5% 2011 0.5% 2015 0.5-1.0%*

* at end of parliament.


The article goes on to say that over the recent period, CEBR and Capital Economics have been the most accurate predictors of rate rises, though in the case of the latter this accuracy has not extended to its work on house prices.

(Sunday Times, Money section, 29.08.10, pages 4-5)

Generali

Generali (strictly an amateur, not an expert)

2010 0.5% 2011 0.5% 2015 5%

tomterm8

I tend to agree Generali about the general trend...

my best guess is:

2010 0.5-0.75% 2011 0.75%-1.5% and 2015 6%.

So, I think concern about inflation will be slightly higher than most people.

HAMISH_MCTAVISH

2010--0.5%
2011--0.5%
2015-- Between 1% and 3%, depending on the strength of the recovery.

I also think we'll see QE2 in 2011.

Generali

HAMISH_MCTAVISH wrote: »

2010--0.5%
2011--0.5%
2015-- Between 1% and 2%

I also think we'll see QE2 in 2011.

I sincerely hope you are wrong. If you are right that implies a very nasty dose of deflation for the UK economy.

tomterm8

That's interesting, Hamish, the only reason I can see interest rates staying so low over the long term is 'economy is screwed'. Are you a secret bear in disguise?

What do you thing GDP will be like next year?

vivatifosi

HAMISH_MCTAVISH wrote: »

I also think we'll see QE2 in 2011.

I'm also hoping for no more need for QE, but the PA put out an interesting news release a couple of hours back which relates to a conference in the US being attended by BoE Deputy Governor, Charles Bean:

http://www.google.com/hostednews/ukpress/article/ALeqM5jfYdqd5etHggjScXKjSudSvLGltg

Presenting a report to the conference on Saturday, Mr Bean said: "The deleveraging process is incomplete, the recovery remains fragile and a considerable margin of spare capacity is yet to be worked off.
"Further policy action may yet be necessary to keep the recovery on track."

HAMISH_MCTAVISH

Generali wrote: »

I sincerely hope you are wrong. If you are right that implies a very nasty dose of deflation for the UK economy.

I've edited to be clearer.

I'm expecting a weak recovery. If that is pessimistic and we see 3% real GDP growth or better, then rates may be a tad higher.

But I don't think we'll see 5% base rates for a decade or longer.

I just can't see money supply growing fast enough through the next few years of deleveraging to make raising rates the right response.

HAMISH_MCTAVISH

tomterm8 wrote: »

That's interesting, Hamish, the only reason I can see interest rates staying so low over the long term is 'economy is screwed'. Are you a secret bear in disguise?

I can see rates staying low because the economy would be screwed if we raised them, which is not quite the same thing as the economy remaining screwed.

Demand destruction is not the appropriate policy response for cost-push inflation.

Demand-pull inflation is pretty much impossible without a growth in money supply and a wage price spiral, which in these times of fiscal policy tightening seems nearly impossible.

How do you reconcile that with the bears claims of ever lower wages and disposable incomes being a certainty? It's an illogical proposition for them also to then claim base rates will be rocketing.

Whereas the bulls forsee a gradual recovery, with extremely loose monetary policy successfully balancing fiscal tightening and a period of deleveraging.

What do you thing GDP will be like next year?

Weak growth.

C_Mababejive

Generali wrote: »

I sincerely hope you are wrong. If you are right that implies a very nasty dose of deflation for the UK economy.

"By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some"

John Maynard Keynes on abandonment of the Gold Standard

tomterm8

HAMISH_MCTAVISH wrote: »

IHow do you reconcile that with the bears claims of ever lower wages and disposable incomes being a certainty? It's an illogical proposition for them also to then claim base rates will be rocketing.
.

I think the two things you mention are reconcilable, although I don’t think the circumstances where they are reconcilable will exist.I tend to think inflation is a monetary phenomenon, and the circumstance where you can have rising inflation and low monetary growth is one where the economy is in recession, so there is less ‘money’ chasing a lot less ‘stuff’. They call this stagflation.

It’s not pretty, but it has happened in the past... although I don’t think it is likely in the near future.

My personal view is that the trend growth rate of the UK economy had lowered since the credit crunch, and so the output gap is a lot smaller than many people estimate. I think over the next five years, we are going to have a muddle through economy, with more frequent recessions than normal, BUT, I think there are some great developments happening right now, and I think if we can get past the next 6 years, we really are at the edge of a new industrial revolution. I’m very excited at some of the developments, there are areas I think will have really quite spectacular growth in the next decade, where if you make the right bets, you will get huge returns.