Raising Rates to 1% what will it do?

Really2

Thought we could have a vote, as we all discuss it. Multiple choice, fill your boots.

abaxas

GDP Stays the same

Casue a slight slowing of consumption in people with highlighted hair and atticus t-shirts.

Generali

Lower GDP

Very little IMO, depending on the message that comes with it.

If the MPC say, "We're upping to 1% and that's it for a while, just to cool things off slightly" then the impact will be tiny, mostly on the profits of banks. If they up it and say they're going to carry on increasing rates then that will have more impact (reduce consumption and investment, increase market interest rates, increase Sterling, reduce share and bond prices)

Really2

Lower GDP

GD, I am slightly Disapointed that as a supporter of rates going up you have chosen not to bother. But respect your wish not to respond.

I was hoping to get a reasonable insight in to what we all thought compared to the media etc.

Running_Horse

Most people I know have been using this unexpected period of low interest rates to overpay the mortgage or pay off other debts. So in terms of the economy, I doubt it will make much difference, except inject a strong note of caution.

System

Really2 wrote: »

GD, I am slightly Disapointed that as a supporter of rates going up you have chosen not to bother. But respect your wish not to respond.

I was hoping to get a reasonable insight in to what we all thought compared to the media etc.

It was an "I don't understand" option, I wouldn't have expected him to select anything else

purch

Lower GDP

Oops, didn't realise it was multiple guess

I would have voted lower inflation too.

Demand is so low in the economy currently, that a 1% hike would likely choke it off.

GBP would get stronger in the shortish term, but once the enonomy starts to implode people will not want to own GBP for long.

Heyman_2

Inflation Stays around the Same

Really2 wrote: »

GD, I am slightly Disapointed that as a supporter of rates going up you have chosen not to bother. But respect your wish not to respond.

I was hoping to get a reasonable insight in to what we all thought compared to the media etc.

The GD view, echoed by some on here, is to raise rates so that the BofE can be seen to be doing SOMETHING to preserve confidence in them. Now the big problem with that is, how are they going to justify it?

I'd have a lot less confidence in them if they pushed the panic button and said, 'yeah, you know what, we were holding our nerve but this latest month's spike in inflation caused a few brown trousers around the place, so here's a rate rise!'. It just wouldn't make sense if you're talking about preserving the credibility of the BofE, especially seeing as their public view up until this point has been that this is a temporary situation with inflation.

LilacPixie

Defaults stay the same.

I think that 1% increase will have little affect TBH. Everyone i know who has a mortgage is either still tied into a fixed rate and therefore 'immune' from rises to mortgage payments or on a lenders SVR that is lower than the fixed rate they left but still paying the fixed rate amount.

I think it could also deped on how they do it. 4 x 0.25% over 8-9 months will have less of an impact/shock than a rise of 1% next month.

Really2

Lower GDP

LilacPixie wrote: »

I think it could also deped on how they do it. 4 x 0.25% over 8-9 months will have less of an impact/shock than a rise of 1% next month.

Personaly I think rates on the way up will go up every other month or 1/4 at 0.25%. Just so they can see the impact.

michaels

Lower GDP

Well standard models say the impact of interest rate rises is 2 years after they change so in 2 years time when the impact feeds through there will already be another 5.75% of increases still to feed through...

Interestingly rate rises will push up the RPI and thus increase the likelihood of wages increasing so more likely to cause a wage price spiral than keeping them the same.

Inflation will fall in Jan 12 by 1% as the impact of the increase in VAT drops out. The other key components causing the index to increase are food and fuel costs - if anyone can predict those over the next 12 months please let me know as I would like to retire. It may be that food prices will fall back and oil prices not increase any further in which case inflation in Jan 12 might be negative and with increased interest rates and higher sterling deflation could be the risk.

I would love the money of being on the MPC but I wouldn't like to be held responsible for an inflation prediction.

Really2 wrote: »

Personaly I think rates on the way up will go up every other month or 1/4 at 0.25%. Just so they can see the impact.