How long can the BoE keep rates from rising?

des_cartes

As interest rates all around the world are being raised to combat inflation just how much longer will the BoE keep UK interest rates low and inflation high? Do they not understand that high inflation damages British industry and stops consumers from spending? Also, low interest rates are having a devestating effect on the housing market with mortgage holders increasingly not having enough money at the end of the month to pay the mortgage and potential housebuyers having their affordability reduced due to massive increases in essentials like food, energy and fuel. The message to the BoE is clear. Like almost every other country, it's time to raise interest rates and save the economy.

Really2

They have stated they are unlikely to raise rates until the economy is stronger and employment is picking up.

Can you explain how raising rates saves they economy seeing as low rates are a tool to stimulate the economy?

FTBFun

"Like almost every other country"

Like the largest economy in the world, perhaps?

http://www.guardian.co.uk/business/2011/jun/22/federal-reserve-holds-us-interest-rates-again

Oh wait.

The US recovery is slower and weaker than expected, the Federal Reserve said, as it decided to hold interest rates at historic low levels and hinted that more government relief could come if the recovery stalls.

ess0two

des_cartes wrote: »

As interest rates all around the world are being raised to combat inflation just how much longer will the BoE keep UK interest rates low and inflation high? Do they not understand that high inflation damages British industry and stops consumers from spending? Also, low interest rates are having a devestating effect on the housing market with mortgage holders increasingly not having enough money at the end of the month to pay the mortgage and potential housebuyers having their affordability reduced due to massive increases in essentials like food, energy and fuel. The message to the BoE is clear. Like almost every other country, it's time to raise interest rates and save the economy.

If low rates are causing mortgage holders NOT to have enough at the end of the month to the pay the mortgage, as you put.

How is raising rates gonna help?

FTBFun

ess0two wrote: »

How is raising rates gonna help?

I think the logic is higher interest rates = more distressed sellers = buy a bigger house for myself than I can currently.

It's self interest dressed up as actually having a concern about the economy. That's fair enough but I'd rather him (and the usual suspects) were a bit more open about it.

bengasman

Increasing the base rate will do very little to decrease inflation at this point in time.
When you have a buoyant economy and excessive borrowing is pushing prices up due to consumer demand, a higher interest rate means a higher threshold for consumers to take out another loan.
At the moment, the reluctance of banks to lend money is more than enough to curb borrowing and a rise in interest rates would have more chance of rising inflations than lowering it.

abaxas

FTBFun wrote: »

I think the logic is higher interest rates = more distressed sellers = buy a bigger house for myself than I can currently.

It's self interest dressed up as actually having a concern about the economy. That's fair enough but I'd rather him (and the usual suspects) were a bit more open about it.

That is 100% logical.

Until you factor in the differential between wage inflation and actual inflation.

There comes a point where raising rates will actually put more money in people's pockets, if it sorts out price inflation. Also remembering that this low IR enviroment has forced the 'bust' to be longer and more drawn out, instead of a sharp shock.

Paying less now, does not mean you always get the best deal in the long term. Ie the Fiat / honda argument :P

FTBFun

abaxas wrote: »

That is 100% logical.

Until you factor in the differential between wage inflation and actual inflation.

There comes a point where raising rates will actually put more money in people's pockets, if it sorts out price inflation. Also remembering that this low IR enviroment has forced the 'bust' to be longer and more drawn out, instead of a sharp shock.

Paying less now, does not mean you always get the best deal in the long term. Ie the Fiat / honda argument :P

Of course, but I'm not sure how much interest rate rises will do to curb inflation.

It appears that rising commodity prices are one the major factors in inflation in recent times - not an excessive growth in the money supply. Raising the BOE rate by a couple of percent isn't going to affect global wheat prices, for example.

Graham_Devon

FTBFun wrote: »

Of course, but I'm not sure how much interest rate rises will do to curb inflation.

It appears that rising commodity prices are one the major factors in inflation in recent times - not an excessive growth in the money supply. Raising the BOE rate by a couple of percent isn't going to affect global wheat prices, for example.

Explain to me why the EU has raised rates (and apparently is likely to do so again today) to deal with said inflation then please?

FTBFun

Graham_Devon wrote: »

Explain to me why the EU has raised rates (and apparently is likely to do so again today) to deal with said inflation then please?

Just because the ECB chooses to raise rates to curb inflation doesn't mean the BOE needs to as well. We have different economic issues than [STRIKE]Germany[/STRIKE] the EU.

shortchanged_2

Graham_Devon wrote: »

Explain to me why the EU has raised rates (and apparently is likely to do so again today) to deal with said inflation then please?

Unfortunately Graham this is the major flaw with the single currency in that the big boys like Germany and France who's economies are in decent shape are calling the shots. Many of the fringe countries (the so called PIGS) are probably only going to suffer more from a rate rise now.

While I'm no big fan of the really low interest rates as they do only really highlight a weak and shafted economy, I don't really see the benefit of raising them at the moment and that's nothing to do with housing it's regarding the economy in general. The UK is still at severe risk of going back into recession.