BoE Interest Rate Predictions.

RenovationMan

http://www.thisismoney.co.uk/interest-rates


"When will rates rise?

The MPC ordered 'hold' at its most recent meeting (9 June), leaving the UK bank rate at 0.5% for the 27th month.



The chances of a rise have diminished greatly since April. Many economists, noting a fall in inflation in March, began to wonder whether the first rise would be delayed until 2012.
But April inflation (17 May) rose faster than expected - up to a 2½ year high of 4.5%, testing this thinking. /I][URL="http://www.thisismoney.co.uk/news/article.html?in_article_id=533861&in_page_id=2"][COLOR=#3366cc][I]How interest rate futures reacted[/I][/COLOR][/URL][I

And last month, the Bank of England's quarterly Inflation Report was translated as fairly hawkish (11 May) and warned of 5% inflation. That was followed by a warning from the OECD that rate rises must happen in 2011 (25 May) to avoid inflation becoming 'embedded' in the economy.

However, the over-arching mood is that the economic recovery remains weak, making it difficult to hike the cost of borrowing: official figures suggested GDP grew by only 0.5% in the first quarter (27 April). This economic frailty was underlined by the first drop in factory orders in two years (1 June).


MPC member views: Meeting minutes (18 May) showed the showed the MPC moving no closer to a rise in May: the vote was 6 to 3 for hold - the same as in April,March and February. Two voted for a rise in January.

Andrew Sentance, who has called for rises since the summer, voted again for a 50-basis point rise to 1% in May - the fourth month he has done so. But that was his last vote, stepping down to be replaced by Goldman Sachs economist Ben Broadbent, who is said to be less 'hawkish'. Analysts translated comments Broadbent made (17 May) as suggesting he would be unlikely to call for aggressive rate rises. /I][URL="http://www.thisismoney.co.uk/news/article.html?in_article_id=533819&in_page_id=2"][COLOR=#3366cc][I]How will Broadbent vote?[/I][/COLOR][/URL][I

Meanwhile, arch-dove Adam Posen, the MPC's biggest fan of low rates, has continued to call for more money printing. He is so convinced that inflation will fall below 1.5% next summer that he says he'll quit if it's not (29 March).

Most recently, BoE chief economist and MPC member Spencer Dale defended his backing of rate rises in an FT interview (23 May) while Paul Fisher made an unflinching defence (25 May) of keeping rates on hold.



Market predictions

So when will the MPC make the first move?

Interest rate futures (8 June) point to March/April 2012 for the first increase from 0.50% to 0.75%. "

I based my 'interest rate gamble' on rates going up in July this year, so if rates don't start to rise until March / April next year, this will be way and beyond anything I could have hoped for. I'll be almost two years in this house by then and will have met my 50% equity challenge a whole year early!

Looks like I'll be needing a new MFW challenge.

mbga9pgf

When they do, I can't imagine them over 3 percent in the next 5 years.

Pimperne1

RenovationMan wrote: »

http://www.thisismoney.co.uk/interest-rates


"When will rates rise?

The MPC ordered 'hold' at its most recent meeting (9 June), leaving the UK bank rate at 0.5% for the 27th month.



The chances of a rise have diminished greatly since April. Many economists, noting a fall in inflation in March, began to wonder whether the first rise would be delayed until 2012.
But April inflation (17 May) rose faster than expected - up to a 2½ year high of 4.5%, testing this thinking. /I][URL="http://www.thisismoney.co.uk/news/article.html?in_article_id=533861&in_page_id=2"][COLOR=#3366cc][I]How interest rate futures reacted[/I][/COLOR][/URL][I

And last month, the Bank of England's quarterly Inflation Report was translated as fairly hawkish (11 May) and warned of 5% inflation. That was followed by a warning from the OECD that rate rises must happen in 2011 (25 May) to avoid inflation becoming 'embedded' in the economy.

However, the over-arching mood is that the economic recovery remains weak, making it difficult to hike the cost of borrowing: official figures suggested GDP grew by only 0.5% in the first quarter (27 April). This economic frailty was underlined by the first drop in factory orders in two years (1 June).


MPC member views: Meeting minutes (18 May) showed the showed the MPC moving no closer to a rise in May: the vote was 6 to 3 for hold - the same as in April,March and February. Two voted for a rise in January.

Andrew Sentance, who has called for rises since the summer, voted again for a 50-basis point rise to 1% in May - the fourth month he has done so. But that was his last vote, stepping down to be replaced by Goldman Sachs economist Ben Broadbent, who is said to be less 'hawkish'. Analysts translated comments Broadbent made (17 May) as suggesting he would be unlikely to call for aggressive rate rises. /I][URL="http://www.thisismoney.co.uk/news/article.html?in_article_id=533819&in_page_id=2"][COLOR=#3366cc][I]How will Broadbent vote?[/I][/COLOR][/URL][I

Meanwhile, arch-dove Adam Posen, the MPC's biggest fan of low rates, has continued to call for more money printing. He is so convinced that inflation will fall below 1.5% next summer that he says he'll quit if it's not (29 March).

Most recently, BoE chief economist and MPC member Spencer Dale defended his backing of rate rises in an FT interview (23 May) while Paul Fisher made an unflinching defence (25 May) of keeping rates on hold.



Market predictions

So when will the MPC make the first move?

Interest rate futures (8 June) point to March/April 2012 for the first increase from 0.50% to 0.75%. "

I based my 'interest rate gamble' on rates going up in July this year, so if rates don't start to rise until March / April next year, this will be way and beyond anything I could have hoped for. I'll be almost two years in this house by then and will have met my 50% equity challenge a whole year early!

Looks like I'll be needing a new MFW challenge.

"Yes but the value of your home will have gone down in "real" terms" - how do you feel about that?

RenovationMan

mbga9pgf wrote: »

When they do, I can't imagine them over 3 percent in the next 5 years.

Neither can I TBH. If we do have low rates for a further 5 years then my mortgage should be down to the 3 x salary calculation beloved by many on here.

Pimperne1

RenovationMan wrote: »

Neither can I TBH. If we do have low rates for a further 5 years then my mortgage should be down to the 3 x salary calculation beloved by many on here.

"Yes but the value (nah de nah de nah).

RenovationMan

Pimperne1 wrote: »

"Yes but the value of your home will have gone down in "real" terms" - how do you feel about that?

Both myself and mbga9pgf have been renovating our properties so we would hope to see them rise in value. I have no plans to sell in the next 20odd years so current house prices have no real interest for me.

DervProf

It's bad news that interest rates don't look like they'll rise in the near future.

Low interest rates (at the moment) are the sign of a weak economy. I'd rather see rates going up to a reasonable level, due to the economy being in better shape.

I suppose those with large mortgages might welcome lower rates, exporters too. I think low interest rates can be viewed from a personal and national perspective, and those two perspectives can look very different.

chucknorris

DervProf wrote: »

It's bad news that interest rates don't look like they'll rise in the near future.

Low interest rates (at the moment) are the sign of a weak economy. I'd rather see rates going up to a reasonable level, due to the economy being in better shape.

I suppose those with large mortgages might welcome lower rates, exporters too. I think low interest rates can be viewed from a personal and national perspective, and those two perspectives can look very different.

It is bad news for the economy generally and specifically for net savers.

Personally though (putting my selfish hat on) it does suit me, being a net borrower on tracker mortgages and with no intention to sell until the market is better in about 10-15 years.

RenovationMan

chucknorris wrote: »

It is bad news for the economy generally and specifically for net savers.

Personally though (putting my selfish hat on) it does suit me, being a net borrower on tracker mortgages and with no intention to sell until the market is better in about 10-15 years.

I don't think you're being selfish to take advantage of a situation that you had no hand in or any control over. Clearly none of us on this board caused the credit crunch, recession and the bank failures, none of us can do anything about the economic impact to the country either. All we can do is make the best of the situation in which we find ourselves.

tartanterra

Personally, I would not be surprised if the base rate didn't change for another 27 months.
There's a lot more pain to come with the ongoing government cuts, and I really don't see much prospect for future growth in the economy until all the damage created by the last governments reckless spending policies has been cleared up and put to bed.:(

I feel sorry for those who have been prudent with their savings and are now seeing the value of that sensible future provision being eroded.
It's currently a big poo sandwich, and it seems we are all expected to take a bite.:lipsrseal

Generali

mbga9pgf wrote: »

When they do, I can't imagine them over 3 percent in the next 5 years.

That's a long time.

From 1970-75 the RPI rose from 6.4% to 24.2%. From 1980-85, the RPI fell from 18% to 6.1%.

If inflation quadruples or falls by 12 percentage points there will be some pretty strong policy responses.