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MSE News: Base rate held at record 0.5% low again
Former_MSE_Guy
Former MSE 1.7K Posts
This is the discussion thread for the following MSE News Story:
"The Bank of England today announced it is holding the base rate at its historic low for the 29th consecutive month ..."
"The Bank of England today announced it is holding the base rate at its historic low for the 29th consecutive month ..."
Read the full story:
Base rate held at record 0.5% low again
This thread is not in the 'discuss house prices and economy board' as that is only open to those logged into the forum so anyone coming from the news story may not be able to see it.
Base rate held at record 0.5% low again
This thread is not in the 'discuss house prices and economy board' as that is only open to those logged into the forum so anyone coming from the news story may not be able to see it.
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£60K if you are a couple as you can put £15K in trust for each other.
I'm not clear on how the trust thing works for unmmaried people.
I would guess you can do it of there is someone you really trust.
Why?
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It is always different this time. The only thing that is the same is the outcome.
Portfolios are like personalities - one that is balanced is usually preferable.
Considering Mervyn's job (rewarded now by knighthood) consisted nowadays of writing a continual stream of monthly letters for years to the Chancellor all about a "short term blip"... the conspiracy theorists might have it that the Gov actually wants the highest level of inflation the voters will let them get away with in order to reduce the deficit in real terms?
That's a bit different to saying 'For the rest of your savings more printing money is a disaster [my italics], but probably what the BOE/Gov want...'
Money hasn't simply been 'printed'. It has been used to purchase gilts in the market - some of which have been at below par value. This has effectively meant early repayment of the gilts for the original holders. Interest payments will be going to the BoE, and redemption payments will also go to the BoE, which should then cancel the money, effectively removing elements of QE stimulus.
The gilt purchases have helped to keep yields low, so that the additional gilts that have been sold into the market have a lower coupon on them than might otherwise have been the case. When interest rates do start to rise then yields on gilts will probably be higher too, so getting a higher volume of low-cost cash now should help to keep ongoing interest payments down into the future. When these gilts do mature, then hopefully, they will be replaced with a lower level of issuance bringing down the amount of gilts (i.e. government debt) in issue. Might take some time, but should get there.
In some respects, inflation is a bit of a red herring when it comes to debt. What is important is a growing income to be able to service the debt, which in the case of the government will be tax revenues. For this, we need a growing GDP. If income does not increase fast enough then inflation will actually make it harder to service the debt because more revenue will be needed for other - increasing - expenses. Inflation is probably higher in the UK than in the US and Euroland (some countries) because of our flexible exchange rate which has allowed the pound to fall against those other currencies, therefore making some imports more expensive in Sterling terms.
Not as exciting as a conspiracy theory, but I haven't had so much coffee today so I'm not so hyper!
It is always different this time. The only thing that is the same is the outcome.
Portfolios are like personalities - one that is balanced is usually preferable.
Interest rates and gilt yields were quite a bit higher in the past so the burden of paying the higher coupon payments would have been higher then too. QE has brought forward the redemption payments for the holders, so they get the cash to use now rather than in 10/15/30 years' time.
Consider, £200Bn 'printing', but inflation is only 5% and forecast to fall - a substantially long way from the hyperinflation being suggested by some in 2008/9 as a consequence. Some of the inflation is due to a falling exchange rate rather than abundance of money. The 'printing' was to avoid the errors made in the 1920s/30s where reducing money supply led to deflation and economic depression. With slowing economies, that is a current danger too, and deflation is a much worse senario than more-than-mild inflation (and yes, I am involved in the weekly food purchases, if anyone should ask)
Where there is confusion at times is that 'printing money' is associated with the Weimer Republic and Zimbabwe. But in those cases the money was used to pay current expenses (strikers' and unemployment benefits in the case of W.R.) so the cash was put directly into peoples' pockets with no way of being able to withdraw it later. With QE, the money has been used to repurchase existing debt which has allowed more debt to be issed with a low coupon. And gilts bought by the BoE should be redeemed and the 'printed money' then cancelled (it is electronic rather than printed). I wouldn't use the word 'benign' to describe this situation - it is very serious. The situation can be unwound, but slowly.
It is always different this time. The only thing that is the same is the outcome.
Portfolios are like personalities - one that is balanced is usually preferable.