Interest rates to rise in November as recovery strengthens

geneer

http://www.telegraph.co.uk/finance/economics/8643256/Interest-rates-to-rise-in-November-as-recovery-strengthens.html


Sounds sensible.

Although major risks remain, Peter Spencer, ITEM's chief economic adviser, said that as long as European and US policymakers can allay sovereign debt concerns and calm the bond markets "things should turn out OK".
Striking a hopeful note, he added it is "unlikely events will blow up in our face".

Mr Spencer, a former Treasury adviser, has consistently argued that the Bank of England should "hold its nerve" and leave rates unchanged until there is compelling evidence that the country is coping with austerity, so his move is significant.

The market is not pricing in a rate rise until August next year, but Mr Spencer said: "I think they will get a surprise."

Paradoxically, he expects the Bank to start raising rates when inflation begins to fall. "The Bank has a window of opportunity to start to normalise rates in the new year," he said. "In January, VAT and last year's commodity price rises drop out. As inflation comes down, so does pressure on household budgets. So the Bank can raise rates without squeezing people too badly."

He said the Bank is acutely aware that it needs to start "normalising" rates, which is generally interpreted as beginning the process of increasing them from the current historic low of 0.5pc back to around 5pc. ITEM expects a quarter point rise in November. Inflation is currently 4.2pc but is expected to drop automatically to around 3pc at the start of 2012.
Despite ITEM's optimism, it has cut its forecast for GDP growth this year from 1.8pc to 1.4pc and trimmed next year's outlook from 2.3pc to 2.2pc.

Thrugelmir

Until base hits 1.5%. Its effect will be indiscernible on the wider economy in any event.

Only of interest to those linked to it as borrowing rate.

Other major economies may well raised their own base rates by then as well.

geneer

Thrugelmir wrote: »

Until base hits 1.5%. Its effect will be indiscernible on the wider economy in any event.

Only of interest to those linked to it as borrowing rate.

Other major economies may well raised their own base rates by then as well.

They should probably get on with it then.

Loughton_Monkey

An extremely obscure 'club' sponsored by Ernst & Young, is quoted:

ITEM expects a quarter point rise in November.

This becomes

Interest rates to rise in November as recovery strengthens

.

Well I hope you're right, geneer, since as a net saver, I need more interest on my savings now that my mortgage is paid off and I am sitting on the most embarrasingly large house price profit.

Turnbull2000

Can't see it happening. The property market remains weak and many owners are burdened with massive mortgages. With current ultra-low rates becoming practically entrenched into the economy and mortgage borrower mindset, raising them by just 0.5% would likely damage both the property market and consumer spending.

Maybe we'll get a raise in 2012, but nothing major for a good few years yet - or not least till we get gently rising house prices above and beyond peak and salaries have risen in the order of 15-20%

Sibley

I think these ultra low rates will stay for 5-10 years. I really do.

DervProf

Just like I didn't think that house prices would continue to rise at the rate they were (in fact I thought they would fall) much after 2006, I don't think interest rates will stay as low as they are for much longer. It's to easy to conclude that what is happening today will happen again tomorrow, especially when it's been happening for a couple of years.

Sibley

Just like I didn't think that house prices would continue to rise at the rate they were (in fact I thought they would fall) much after 2006, I don't think interest rates will stay as low as they are for much longer

Why not?

There is nothing out here pressing a rate rise. The opposite in fact.

One thing people seem to forget as well is the fact rates were lowered to help homeowners. They won't go back on that one for a long time.

No way will rates go up. We won't allow it the same as we didn't allow house prices to drop.

Generali

Loughton_Monkey wrote: »

An extremely obscure 'club' sponsored by Ernst & Young, is quoted:

The ITEM club isn't obscure at all. More details here:

The Ernst & Young ITEM Club

The ITEM Club is the only non-governmental economic forecasting group to use the HM Treasury model of the UK economy.

ITEM's forecasts are independent of any political, economic or business bias, providing an impartial benchmark for other private and public economic forecasts. Ernst & Young’s sole sponsorship of the ITEM Club helps meet our clients’ needs for objective economic forecasts in their business planning.

IMO, in the period 2003-2007, there were 2 people that were consistently calling the economy correctly: the Treasury and the ITEM club. Everyone else was too pessimistic.

peakoil_2

Loughton_Monkey wrote: »

An extremely obscure 'club' sponsored by Ernst & Young, is quoted:

This becomes .

Well I hope you're right, geneer, since as a net saver, I need more interest on my savings now that my mortgage is paid off and I am sitting on the most embarrasingly large house price profit.

bragging on a forum again?

DervProf

Sibley wrote: »

No way will rates go up. We won't allow it the same as we didn't allow house prices to drop.

"We" ?

Are you a member of the BoE committee, are you getting a bit above yourself ?