When will UK interest rates rise? - Markets Suggest 1% is still 5 years away!

Harry_Boyle

Interesting article from a couple of days ago, which states that money markets are predicting no rise to 1% in the next 5 years, with further rises after that time taking us to 1.25% in 2020.

This would be great news to people on low trackers or anyone who bought an expensive house in a gamble that rates would stay low long enough for them to reduce the mortgage down to UK average levels.

http://www.thisismoney.co.uk/money/news/article-1607881/When-UK-rates-rise.html

"When will UK interest rates rise? Inflation is stuck above target but markets suggest 1% rate is still five years away

UPDATED:14:34, 13 February 2013

LATEST: High inflation combined with stagnant growth forebode a difficult road to economic recovery, the Bank of England warned in its Quarterly Inflation Report.

Governor Sir Mervyn King admitted that the Bank's £375billion quantitative easing programme had become less effective but said it stood ready to do more to support the recovery.

The pound slumped in reaction to Sir Mervyn's downbeat take on the economy, indicating that currency traders believe an interest rate rise that would revive enthusiasm for sterling remains a very distant prospect.

Inflation figures showed CPI stuck at 2.7 per cent in January - the fourth month in a row prices have been rising annually at this rate.
Yet sticky inflation - with the threat of more to come when energy price rises filter through - will not shift interest rate expectations, with the Bank of England already having warned it expects inflation to remain above the Government's 2 per cent target, possibly for as long as the next two years.

Money markets still put base rate at 0.75 per cent at a shade under four years away - indicating rates will not be higher than they are now until the end of 2016.
Bank of England governor-in-waiting Mark Carney has suggested he would move carefully with any changes to the way it runs monetary policy after taking over the job from Sir Mervyn King this summer. But he did favour a 'debate' about the inflation target, and said it would be a good idea for the Government to review overall monetary policy every five years as in his native Canada.

While Carney made his first appearance before MPs on the Treasury Select Committee, the Bank announced that interest rates would stay on hold at 0.5 per cent and the money printing or QE programme would stay frozen at £375billion for another month.

The Bank also said it would reinvest the first proceeds from quantitative easing - which involves buying up government bonds with money it has created itself. Around £6billion of these bonds will mature in March, and if the money raised was not ploughed back into the scheme it would mean a cut in the size of the official stimulus for the economy.

Meanwhile, the swap markets still indicate rate hikes lie well into the future despite more optimistic news on the economy earlier this week. London interest rate swaps suggest a hike to 0.75 per cent is still four years away.

Even when the Bank of England does start raising rates again, it is likely to move very cautiously.

Money markets suggest a base rate of 1 per cent could be five years off in 2018, and an increase to 1.25 per cent might take until 2019-2020"

Harry_Boyle

For those who are actively overpaying or who are considering overpaying their mortgage, the following calculator supplied by Martin Lewis will provide you with details of how much you could save if rates do stay so low over the next 5 or more years:

http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

The usual caveat before overpaying a mortgage is to make sure that you have adequate, instantly accessible emergency savings and that you are putting enough away for retirement.....

shortchanged_2

So all this means that the UK economy is going to be in the doldrums for another 5 years or more.

Great news renoman.

MacMickster

Markets may suggest this at the moment. If, however, we approach the next election with a Labour majority looking likely then the smart money might want to move to a 5 year fixed rate mortgage, as interest rates could end up anywhere.

Thrugelmir

shortchanged wrote: »

So all this means that the UK economy is going to be in the doldrums for another 5 years or more.

Great news renoman.

More than likely.

Pound faces 'quiet crash' warns Cowley

http://www.citywire.co.uk/money/pound-faces-quiet-crash-warns-cowley/a658769?

sabretoothtigger

I see rates rising not as a considered gradual event but more of an avalanche setup, where too much of a 'good thing' becomes the problem itself.
Best to just be prepared or better still take measures to avoid being exposed to it

purch

Harry_Boyle wrote: »

Interesting article from a couple of days ago, which states that money markets are predicting no rise to 1% in the next 5 years, with further rises after that time taking us to 1.25% in 2020.

The markets do not predict anything.

That is not how they work.

Looking at the swap market, and thinking that the prices show a "prediction" of anything is to totally misunderstand how they work, and what the prices mean.

The money markets work in the present, not the future.

They trade all the time, both sides of the price, it's not a bet on what will happen next year, or the year after, it is a bet on what will happen in the next couple of hours.

sabretoothtigger

There is an idea that markets forecast 18 month ahead but I would tend to agree.

Markets cannot predict government policy, if we had a freely set market then maybe we can talk accuracy but politics no.

There is still fear and greed though, you could talk about what they did to Greece, was that predictive or the cause. I think bond failure was more of a reaction, Greece felled itself though GS maybe sharpened the blade for them first


http://en.wikipedia.org/wiki/The_Intelligent_Investor#Mr._Market

Graham's favorite allegory is that of Mr. Market, an obliging fellow who turns up every day at the share holder's door offering to buy or sell his shares at a different price. Often, the price quoted by Mr. Market seems plausible, but sometimes it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or ignore him completely. Mr. Market doesn't mind this, and will be back the following day to quote another price.

The point of this anecdote is that the investor should not regard the whims of Mr. Market as a determining factor in the value of the shares the investor owns. He should profit from market folly rather than participate in it. The investor is advised to concentrate on the real life performance of his companies and receiving dividends, rather than be too concerned with Mr. Market's often irrational behavior.

The actions of someone like Warren Buffet say markets are often the fool not a source of wisdom

Turnbull2000

No more than 2% by 2020 IMO. Those with lots of equity, tracker mortgages and even BTL investments will enjoy a staggering decade long windfall.

CLAPTON

well I don't know

but I would guess that when the markets do more it may be more sudden that is generally thought

marathonic

Yeah, noone knows but I can see the same.... a lot more people than you would typically expect are reading the business sections of newspapers these days so I would imagine that, when confidence returns, it'll trickly back slowly for 6 months but will then come roaring back.

With this, rates could rise pretty fast. There was a 3% drop in the space of 3 months in 2008. This wouldn't have been expected in 2007 when rates were still rising.

Anyone who thinks that the same can't happen on the way up is fooling themselves.