BOE Now Expected To Hike Later Post Poor GDP Data

Generali

nicko33 wrote: »

Do you think they've just been giving away the QE money they "printed" ?

They lent it on repos at 0.5%. The BoE charged for the money but only just.

Graham_Devon

RenovationMan wrote: »

The trouble is that the politicians are led by public opinion and the public is led by the media. You could see that the BoE was coming under increasing pressure to 'do something', and I could see them capitulating and raising rates. Luckily the scenario that the BoE have been predicting from the start is now beginning to play out, which will reduce the pressure somewhat, at least over the short-term.

Further inflation = more money taken out of peoples pockets.

More money taken out of peoples pockets = a decline in spending.

Decline in spending = lower GDP.

Lower GDP = lower sterling.

Lower sterling in our economy = higher inflation.

Inflation was forecast at 6% (CPI) in 2012. That's more and more money taken from people, which means less spent, which affects GDP. Affects jobs. Affects loads of stuff.

It would be nice if it was as simple as not raising rates just because there is a decline in GDP.

Neither is it as simple as I have suggested above.

The BOE's mandate however, IS simple. Target inflation.

A letter does not have to be written to explain why GDP is where it is. However, a letter for inflation being where it is is often needed....every month for the past god knows how long a letter of explanation has been required.

Joe_Bloggs

If banks can get money at 0.5% then it is easy money. The likelihood is that the banks will squander it/profit from it in speculative ventures ,lend it out at extortionate rates, try to profit from massive personal bonuses, and if all else fails try double or quits strategy with the government.

How will reverse QE affect the economic numbers we see ?. Will it ever happen ?
J_B.

Heyman_2

When would you like to see the BofE raise rates Graham? And by how much?

RenovationMan

Graham_Devon wrote: »

Further inflation = more money taken out of peoples pockets.

More money taken out of peoples pockets = a decline in spending.

Decline in spending = lower GDP.

Lower GDP = lower sterling.

Lower sterling in our economy = higher inflation.

Inflation was forecast at 6% (CPI) in 2012. That's more and more money taken from people, which means less spent, which affects GDP. Affects jobs. Affects loads of stuff.

It would be nice if it was as simple as not raising rates just because there is a decline in GDP.

Neither is it as simple as I have suggested above.

The BOE's mandate however, IS simple. Target inflation.

A letter does not have to be written to explain why GDP is where it is. However, a letter for inflation being where it is is often needed....every month for the past god knows how long a letter of explanation has been required.

The BoE's mandate doesnt encompass inflation to the exclusion of everything else.

You seem to be indicating that you think a decrease in people spending power means an increase in inflation. Is that right?

nicko33

Graham_Devon wrote: »

The BOE's mandate however, IS simple. Target inflation.

Not quite that simple
http://www.bankofengland.co.uk/about/corepurposes/

Graham_Devon

RenovationMan wrote: »

You seem to be indicating that you think a decrease in people spending power means an increase in inflation. Is that right?

Right in a way, yes.

Currently we have high imported inflation, and a lowish exchange rate, only amplyfying that inflation.

GDP has fallen, and so has sterling, by 1.3% currently today, against the dollar.

This will further amplyfy imported inflation. That means, over time, more money coming out of peoples pockets for general living costs (fuel, food, transport).

That in turn means less money spent in the economy, which in turn means less demand, less jobs etc, lower GDP.

I'm not going to get into the usual argument over interest rates, when I think they should rise, however, I'm just finding that people are writing off interest rate rises for whatever reaosn they can.

When GDP was rising, we couldnt raise them because it would hurt that rise. Now, we can't raise them because GDP has fallen slightly. When GDP is back to rising, we'll be back to "no, don't raise rates, we'll fall back again".

Whichever way the economy goes, the same people seem to be suggesting we can't raise rates. However, this completely ignores everything else thats going on in the economy. Ignores sterling. Ignoes imported inflation. Ignores the effect of low rates, combined with high inflation, and inflation set to go much much higher, while GDP is set to fall away.

RenovationMan

Graham_Devon wrote: »

Right in a way, yes.

Currently we have high imported inflation, and a lowish exchange rate, only amplyfying that inflation.

GDP has fallen, and so has sterling, by 1.3% currently today, against the dollar.

This will further amplyfy imported inflation. That means, over time, more money coming out of peoples pockets for general living costs (fuel, food, transport).

That in turn means less money spent in the economy, which in turn means less demand, less jobs etc, lower GDP.

I'm not going to get into the usual argument over interest rates, when I think they should rise, however, I'm just finding that people are writing off interest rate rises for whatever reaosn they can.

When GDP was rising, we couldnt raise them because it would hurt that rise. Now, we can't raise them because GDP has fallen slightly. When GDP is back to rising, we'll be back to "no, don't raise rates, we'll fall back again".

Whichever way the economy goes, the same people seem to be suggesting we can't raise rates. However, this completely ignores everything else thats going on in the economy. Ignores sterling. Ignoes imported inflation. Ignores the effect of low rates, combined with high inflation, and inflation set to go much much higher, while GDP is set to fall away.

Sorry, GD but there is just so much wrong in your two posts that I not only dont know where to begin, but I also dont want to because I'd be here all day. I suggest you read some economic literature rather than the bearish posts on here to aquaint yourself with monetary and fiscal policies and the causes of inflation.

I'm not having a go, mate.

Graham_Devon

RenovationMan wrote: »

Sorry, GD but there is just so much wrong in your two posts that I not only dont know where to begin, but I also dont want to because I'd be here all day. I suggest you read some economic literature rather than the bearish posts on here to aquaint yourself with monetary and fiscal policies and the causes of inflation.

I'm not having a go, mate.

That's fair enough.

All I have to say to that is I;ve been told to read some economic books lots of times.

The times when I was suggesting inflation would rise, I was told to read books. , inflation can't happen without wage rises

The times I suggested interest rates needed to be put up to combat pending inflation, told I was insane.

The time I suggested interest rates have an impact on exchange rates was poo poo'ed as not having much of an idea. Within 3 days, the BBC were talking about raising rates to pull up sterling and lower inflation, even those who poo poo'ed it were now talking abotu it.

The times I suggested house prices would fall back again after a surge, I was told I didn't know what I was on about.

The times I suggested the economy will fall back into recession, I was told I was dumb.

The thing is, inflation HAS risen. Houses HAVE fallen back. Economy DOES look to be falling back into recession, though some are suggesting theres a collosal boom around the corner. It will be next year when we know how it actually played out.

Got lots wrong, and nearly every timeframe wrong. But I don't subscribe to the argument whereby no matter which way the economy is going (deflation, inflation, GDP up, GDP down, inmports up, down, exports up, down) the same think is said over and over....can't raise interest rates!!

I do ask the same question over and over again though, and no one but no one answers....how is the current interest rate HELPING the situation. Never an answer.

Linton

Graham_Devon wrote: »

Further inflation = more money taken out of peoples pockets.

More money taken out of peoples pockets = a decline in spending.

Decline in spending = lower GDP.

Lower GDP = lower sterling.

Lower sterling in our economy = higher inflation.

Inflation was forecast at 6% (CPI) in 2012. That's more and more money taken from people, which means less spent, which affects GDP. Affects jobs. Affects loads of stuff.

It would be nice if it was as simple as not raising rates just because there is a decline in GDP.

Neither is it as simple as I have suggested above.

The BOE's mandate however, IS simple. Target inflation.

A letter does not have to be written to explain why GDP is where it is. However, a letter for inflation being where it is is often needed....every month for the past god knows how long a letter of explanation has been required.

Simply wrong. A core and essential part of inflation, and the one targetted by interest rates, is increasing wages. We are not seeing increasing wages. Therefore we do not have internal inflation.

What we are seeing is an increase in commodity prices arising from increases in wealth and demand in parts of the world which were previously poor. Its simply supply and demand. Nothing the BoE does can change it.

Unless we can improve our ability to generate wealth, as large parts of the developing world get richer we will get relatively poorer.