When will interest rates rise?

Theone1_2

lisyloo wrote: »

Possibly some.
But there is also a theory that interest rates will only rise as the economy recovers.
This means that there wil be lower unemployment, payrises, bonuses, overtime etc.

However those people who have over-borrowed could find themselves in trouble.

I believe interest rates will go up very slowly, which will allow the majority to sort themselves out
e.g. put their payrise towards the increasing mortgage costs.

Whilst the BOE don't target house prices, I don't see them putting up rates if it would cause massive repossessions.
That would hit the economy and be counter productive so why would they do that?
I only see very slow rate rises, which is bad news for savers.

What if the economy does not recover but keeps getting worse and inflation keeps going up forcing a rate hike?

lisyloo

What if the economy does not recover but keeps getting worse

Sorry you'll have to explain that in a bit more detail.
Recovery is assocaited with improvement in most areas, in what way do you think it could recover but get worse?
Can you be more specific about what would get worse?
Do you mean the value of Sterling, GDP, unemployment, incomes, inflation or what?
Nothing is impossible, but in general I'd say rate hikes means an impoving economy in general (and by that I mean increased GDP and lower unemployment).

If the economy does do badly I don't think we'll get rate hikes.

and inflation keeps going up forcing a rate hike?

Firstly what makes you think it would force a rate hike?
It's already been more than double the target and has not forced a rate rise.
I don't think the BOE will be forced into anything.

Secondly inflation is shown over a year-on-year period.
We do know what happening at one end of that equation - so we know what is "dropping out" from last year.
So as an exmaple in Jan 2012 the VAT inrease will "drop out" and we will no longer be comparing prices with 17.5% VAT from last year with prices including 20% VAT from this year.
There are reasons to think inflation will go down and that's what the BOE think.

Of course all in my opinion and open to debate.

Turnbull2000

Theone1 wrote: »

Will there be many more distressed sellers when interest rates go back up?

No. Firstly, interest rates will barely rise for a good few years yet. Many of those who were stretched to the limit throughout the boom will have the opportunity to pay down capital rapidly. Secondly, state intervention to prevent repossessions will remain or be strengthened in the unlikely event that rates rise above say 4%.

The lesson learned from previous crashes is that distressed sales are the drivers of falling values, therefore every effort will be taking to prevent them now and in future.

sabretoothtigger

No. Firstly, interest rates will barely rise for a good few years yet.

Thats the presumption we currently benefit from, enjoy it while it lasts.

When money is borrowed its usually the lender who decides the rate not the borrower, at the moment government says 'rates must stay low'
but to presume they have the final say while increasing the amount they borrow does seem unrealistic.

Also its mostly about USA, they have low rates, we have low rates. Really the power and word of UK to say anything is small, we piggyback USA policy so far as I can tell

mbga9pgf

Austerity transfers fiscal tightening to the monetary base, in other words, meaning we dont have to tighten monetary policy. I think time will demonstrate, a fiscal squeeze is the right solution, when combined with a serious personal debt overhang. THe last thing we need is monetarty tightening now.

Fiscal squeeze allows reduction of the deficit, whilst reducing the money supply. Increasing the base rate just removes money from the economy and doesnt pay off the deficit. Which one do you think they are going for?

Lets see what the inflation rate will be in 12 months shall we? Very surprised if its above 3%.

sabretoothtigger

[strike]Austerity[/strike]

There isnt any, we are increasing debt still which does not qualify as cutting a budget. UK runs a deficit, this means overspending will occur for years in future

I'm not so sure about that now we are rid of Labour

The legacy of a government lasts for probably a full term after at least

mbga9pgf

Merv agrees with me.

http://www.telegraph.co.uk/finance/economics/8488547/Bank-of-England-Governor-Mervyn-King-warns-on-interest-rate-rise.html

Turnbull2000

mbga9pgf wrote: »

Merv agrees with me.

http://www.telegraph.co.uk/finance/economics/8488547/Bank-of-England-Governor-Mervyn-King-warns-on-interest-rate-rise.html

A lot of property investors are going to do very nicely over the next few years, and the chances of significant nominal price falls are all but extinguished. A gather this is quit bad news for traditional pensions though, so the push towards BTL could be even greater.