MSE News: Base rate hike moves closer

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"More Bank of England policymakers voted in favour of a rise, minutes of the February rate-setting meeting reveal ..."

Read the full story:
Base rate hike moves closer

Paul_Herring

A rate rise would push savings returns up but bring misery for mortgage holders, as those on variable rate deals will see costs jump.

I don't foresee any rise soon, with people like Mr Bean on the committee with the attitude that:

Bean, [...], admitted [the rate] was being held down in the hope families would use their cash [savings] and thereby help reflate the economy.

Further:

"What we're trying to do by our policy is encourage more spending," Bean told Channel 4 News. "Ideally we'd like to see that in the form of more business spending, but part of the mechanism that might encourage that is having more household spending; so in the short term we want to see households not saving more but spending more."

tara747

Mr Bean... and indeed he is!!! :mad:

Do they not realise that you cannot FORCE people to spend if they don't feel confident to do so!

Just wait for the £ to start tanking, then they'll have no choice but to raise - and fast.

And I have a VI here as I am fed up of crap savings rates.

Joe_Bloggs

Let us hope for Mr Bean's sake that bankers spend their bonuses to reflate the economy rather than the hard pressed general public spend their savings on overpriced things they don't need.
J_B.

talexuser

the question is when to sell corporate bond funds?

MacMickster

Imported inflation (the rising cost of imported goods) is almost entirely to blame for the current inflation rate. In part this is due to the weak pound. Raising interest rates significantly would certainly raise the value of the pound in the short term and thus reduce the value of imported goods, but a small increase would have no significant effect. Unfortunately a significant increase would also lead to a significant level of defaults on loans by homeowners and small businesses, make it considerably more difficult for startup businesses to obtain finance and for established businesses to expand, and threaten the existence of the banks who (unfortunately) are a vital part of our economy.

The result would be devastating to the economy and lead to a further (and possibly terminal) devaluation of the pound.

If it were not for QE we would never have emerged (even temporarily) from the recession. A devalued pound is an inevitable result of QE (effectively printing more money). Now is not the time to raise interest rates or we will lose the benefit of QE and push the country back into recession.

People argue for a better return on their savings or investments. You should never expect a real rate of return from risk free investment. Locking money away in savings accounts does not benefit the economy (the banks are reluctant to lend that money), so why expect a high return? Buying shares in quoted companies carries more risk but promises potentially higher returns.

Perhaps what is needed is a new way to invest in startup and expanding small businesses, so that individuals with savings can combine to spread their risk across a wide range of such businesses. A new (or old?) type of bank. This would benefit the economy and provide higher yields to investors.

Paulgonnabedebtfree

tara747 wrote: »

Just wait for the £ to start tanking, then they'll have no choice but to raise - and fast.

I do believe you are right in assuming that a plummeting pound would be more likely to trigger rate rises than (mostly) imported inflation. The precious pound plummeting would be more likely to hurt the rich than a bout of inflation - and I've never yet seen this country run by paupers whatever political label they attach to themselves.

Consumerist

MacMickster wrote: »

You should never expect a real rate of return from risk free investment.

Why not ? Those I ultimately lend it to (businesses, homebuyers, etc.) expect to use it to make a profit. Even if I accept your dubious premise, what bank is currently paying 5.1% AER on savings to give me a zero real return ?

Gorgeous_George

Savings rates won't rise if base rates rise to 1%. Mortgages will only rise for those on trackers.

I think savings rates will be lower than inflation for years to come.

GG

TCA

I agree with Gorgeous George. We're not going to see savings rates making rapid rises when the bank rates do go up. That's why I've decided to lock away some cash with Coventry at 4.75% for 5 years. Looking at the best shorter term fixed rate alternatives:

1) BM at 3.85% for 2 years would require 5.35% over the following 3 years to equal Coventry. And that's ignoring having to move money between accounts after 2 years.

2) Coventry at 4.15% for 3 years would require 5.65% over the following 2 years to equal Coventry. And that's also ignoring having to move money between accounts after 2 years.

Not impossible (and some would say probable) but I'm going to settle for the certainty of the rate I'm accepting now. I've got a "get-out" anyway, albeit 180 days interest, should savings rates head for the stratosphere.

apt

I don't think inflation will stay ahead of savings interest rates too long - maybe 12-18 months. The spike in many of the commodity prices will be reversed with new production being encouraged and fewer crop failures. Inflation would only continue at 4-5% if wages took off or VAT was hiked even more which isn't likely to happen. As others have said, people have no right to expect risk free savings to beat inflation.