BOE MINUTES - MPC considered Jan rate rise, 2 vote for hike

ILW

tomterm8 wrote: »

It's hard to see it would really have much of an effect on anything, the rates borrowers can borrow, and people actually lend to the banks at is so different from the base rate.

Maybe I am wrong, but the only effect it seems likely to have to me is reduce bank profits a little.

The only ones that would see any major difference would be people sitting on .5% above base lifetime tracker mortgages.

Graham_Devon

RenovationMan wrote: »

If you raise interest rates it'll have a larger impact on tax income than reducing fuel duty for a section of industry. I now a lot of the bears are pinning their hopes of a rate rise decimating home owners but the reality is that it will decimate businesses more. Companies are already struggling to get credit at decent rates, some are struggling to get credit at all. If rates are raised, companies will go under. If companies go under then the tax income from those companies and from their employees stop.

I can't say I'm pinning any hopes on it decimating owners. I am one with a mortgage.

However, I can say I'm looking to the future. And the fire is being stoked every month with inflation and low interest rates.

At some point, just like the crash, suddenly we may have to decide to raise rates very quickly, and thats the last thing I want. I want to see proactive, not reactive all the time.

Were only talking up to a 1-2% rise here afterall, no ones talking about full blown rises to 8% etc. That's what I'm worried may happen if we continue to just sit on the fence and find ourselves having to be reactive to a situation many of us saw coming.

Generali

RenovationMan wrote: »

It makes you wonder why they are voting before they receive such important figures. Surely their decision should be based on all of the available information. While the GDP report may not have been completely compiled, I'm sure that the BoE could have requested some interim figures for their meeting at least. It seems the BoE were as surprised as the rest of us.

I do wonder if Sentance will keep up his stance on raising rates, despite the GDP figures, and whether Weale will retract his vote for a rise. Sometimes when people make a wrong decision they stick with it regardless, hating to admit that they were wrong. I wonder if either Sentance and Weale are man enough to do so?

angrypirate wrote: »

I thought the BoE normally got a preview to the expected figures in their meeting?

The Bank of England has 'agents' (that's really what they're called) who report on the economy at a local level. They also, I believe, have access to the returns produced by companies as they report their output for GDP figures but also to things like VAT returns.

There are also plenty of proxies for GDP that while taken individually would be unreliable but while taken together would be pretty reliable. That would be stuff like industrial energy sales, train season ticket sales, new HGV/LGV registrations.

Those are like the Generali-ometers. In the UK they were things like how long people were prepared to queue to pay £3 for a milky coffee and the number of cranes you could see as you walked over London Bridge.

Heyman_2

Graham_Devon wrote: »

I want to see proactive, not reactive all the time.

The MPC are being proactive, they set interest rates based on where they see the economy being in 18-months to 2 years time, and at the moment their forecast is that within that timescale we could see deflation setting in.

If they were being collectively reactive, they would be looking at the past and present inflation figures and setting rates based upon that - which many people here, yourself included, would like to see them do!

ILW

The bit that worries me is that the Boe have been saying that inflation will fall within the next few months for about two years now and have been totally wrong. If they are wrong again and it does all catch up with them, we could see rates having to be hiked very quickly, which will cause a load more grief that a gradual increase.

Heyman_2

ILW wrote: »

The bit that worries me is that the Boe have been saying that inflation will fall within the next few months for about two years now and have been totally wrong. If they are wrong again and it does all catch up with them, we could see rates having to be hiked very quickly, which will cause a load more grief that a gradual increase.

The only argument I've seen so far for hiking interest rates to deal with the imported inflation we are seeing is that it might make our currency stronger and thus drive down the cost of imports. Might. Not will.

This against a backdrop of an economy which recently contracted and doesn't look to be booming anytime soon, with wages still frozen all over the place.

Doesn't make sense to me.

RenovationMan

ILW wrote: »

I cannot see that a rise of .5% or so whould have much effect on most business borrowing. Most small businesses are paying 9 or 10% now and the effect would be negligible.

It follows that 0.5% would also have very little effect on inflation, so they would have to keep increasing it until it did. But what if rate rises are the wrong tool and have zero effect, all we have achieved then is to destroy the economy further and we still pay more for oil.

Graham_Devon

Heyman wrote: »

The MPC are being proactive, they set interest rates based on where they see the economy being in 18-months to 2 years time, and at the moment their forecast is that within that timescale we could see deflation setting in.

That's just a continuation of what they have previously been saying for the last 1.5 years.

That's not proactive to just keep saying the same thing, especially when you have already found out that not only has what you have been "proactively" saying is wrong, but getting worse and worse. It's leading to a situation where the possibility of having to be reactive is more and more a concern.

If I had a problem with my car and kept saying "it will go away"...is that proactive? If the car problem keeps getting worse, and I still say "it will go away"....is that proactive?

At the point where the car completely fails an dcosts me far more than just sorting it in the first place, could I say I was proactive?

Heyman_2

Graham_Devon wrote: »

That's just a continuation of what they have previously been saying for the last 1.5 years.

That's not proactive to just keep saying the same thing, especially when you have already found out that not only has what you have been "proactively" saying is wrong, but getting worse and worse. It's leading to a situation where the possibility of having to be reactive is more and more a concern.

If I had a problem with my car and kept saying "it will go away"...is that proactive? If the car problem keeps getting worse, and I still say "it will go away"....is that proactive?

Your car analogy makes it sound as if they are turning a blind eye - far from it, they are making proactive decisions on balance based on the data they have in front of them and the implications for the future.

In pure economic terms, their rate decisions will take at least 12-18 months to filter through, but they have to balance that with the effect on sentiment that a raise in rates would have at a time when the economy faces so many challenges. It would send out the wrong message. That's why rates are being held where they are.

I think they have an impossible job on their hands to be fair - they don't have a crystal ball, but they do need to try and predict what will happen in order to set proper monetary policy.

I don't think I have to remind you of all the 'experts' on this forum who make grand predictions that don't come off due to changes in circumstance. I guess the 'House Prices 50% down by 2009' falls into that category (sorry Brit).

ILW

I believe that the "message" they are giving at the moment is that they do not have a clue so will do nothing. That will not inpire confidence in the markets.

As far as experts go, it does appear that the average forecasts here and "down the pub" have been as accurate as anything that Mervyn King has come up with, which makes you wonder what makes him and his cronies worth the millions we are paying them.