Are interest rates about to take off?

macaque_2

All the ingredient have been in place for several years (ultra low interest rates, QE, high government spending). It could only been a matter of time before the aspirations of politicians and the harsh reality of global markets took a divergent path. Everyone loves the 'global economy' at the moment. Perhaps they might like it a little less in a few months time.

The cost of borrowing for the eurozone’s peripheral economies rose to record highs on Thursday amid signs the debt crisis that forced Ireland into a multibillion-euro bail-out was spreading.

http://www.ft.com/cms/s/0/d0976a74-f8ca-11df-b550-00144feab49a.html?ftcamp=rss#ixzz16KOfNqga

amcluesent

After the next election

Really2

macaque wrote: »

All the ingredient have been in place for several years (ultra low interest rates, QE, high government spending). It could only been a matter of time before the aspirations of politicians and the harsh reality of global markets took a divergent path. Everyone loves the 'global economy' at the moment. Perhaps they might like it a little less in a few months time.

One ingredient missing, matching (ish) wage inflation. High inflation can only be maintained if wages follow.

People can't afford to spend more if they have less to spend.

If the eurozone peripheral economies had their own currencies they would be devaluing them like crazy.

Loughton_Monkey

amcluesent wrote: »

After the next election

Pretty soon, then.

THE_GHOULS_OF_GREED

Why would they and threaten the recovery?

mbga9pgf

IMO, No. The fiscal consolidation together with the deleveraging that needs to take place will create problems of their own. The huge writedowns that could occur over the next few years will create enough concern for the BOE to consider further expansion, rather than contraction in credit.

The money is out there, but as it is all being thrown into illiquid asset purchases and support to assets which have taken a significant haircut, the velocity of money, and hence inflation will remain subdued for a significant time.

Unless the BOE post everyone a few grand to spend on what they like, and cause asset value changes, rates arent going anywere from the BOE. Market rates will be going upas a result of the requirement to generate profits to prevent imparement.

lemonjelly

Really2 wrote: »

One ingredient missing, matching (ish) wage inflation. High inflation can only be maintained if wages follow.

People can't afford to spend more if they have less to spend.

If the eurozone peripheral economies had their own currencies they would be devaluing them like crazy.

Interesting that there are even those on the MPC who are concerned inflation could get towards 4% soon.

If this happens, then this could impact on wage demands in the near future, as workers will be seeing that in real terms their wedge is dwindling in relation to their financial commitments.

Really2

lemonjelly wrote: »

Interesting that there are even those on the MPC who are concerned inflation could get towards 4% soon.

If this happens, then this could impact on wage demands in the near future, as workers will be seeing that in real terms their wedge is dwindling in relation to their financial commitments.

I don't thing the margins are there to allow wages to increase that much to be honest.
Around 1.2% of inflation is VAT and will be next year. Company's don't make money on VAT.

lemonjelly

Really2 wrote: »

I don't thing the margins are there to allow wages to increase that much to be honest.
Around 1.2% of inflation is VAT and will be next year. Company's don't make money on VAT.

Don't disagree mate.

Problem is, the workforce who are stood there with relatively less in their pockets don't want/need to hear this. They will look at their bottom line, in exactly the way every business does.

I feel it could become a little confrontational.

That, or certain consumer spending will start to fall.

Perhaps this website will get a little busier?:)

wymondham

Are interest rates about to take off?

I sincerely hope so!

RenovationMan

I sincerely hope not!