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

johnny_storm

HAMISH_MCTAVISH wrote: »

Hard to describe inflation in the 2.5 to 5% range as "high", certainly by historical standards.

I would agree, except for wage increases being in the 0% - 2% range, others finding their hours cut etc.

Recent stats show that pay packets are back to 2003 level.

while the Office for National Statistics looked backwards and relayed that pay packets are now no weightier than in 2003, indicating an entire lost decade. This is the way prosperity ends: not with a bang, but a whimper.

DervProf

Harry_Boyle wrote: »

Depends on the size of the family's mortgage and what rate is available to them. However, it's almost virtually a given that most family's largest outgoing will be their mortgage, especially young families, and so having their largest bill 'fixed' for a few years won't be unwelcome.

A much worse scenario would be to have a stagnant economy, high imported inflation and high interest rates.

Well, we seem to have two of those things.

I see "the danger" as being people/the economy getting "hooked" on low base rates. If the BoE gradually raise rates when the economy improves, then it will be OK. If rates have to be raised for other reasons, then there could be problems.

The other issue may be that the BoE see the property market and possibly the wider economy improving, but decide to keep rates too low for too long, therefore starting another credit boom. It appears that after the recent credit boom "we got away with it". I'm not so sure that if we had another large expansion in personal borrowing that the BoE would be able to help out in the way that they recently have.

DervProf

Harry_Boyle wrote: »

However, it's almost virtually a given that most family's largest outgoing will be their mortgage, especially young families, and so having their largest bill 'fixed' for a few years won't be unwelcome.

I agree, to a degree.

Throwing a few figures up in the air.......

Let's say a family's mortgage was £600 per month before the credit crunch (2007). Any idea what their mortgage would be now ? How much have their food bills increased since then ?

OK, we could argue the cause/effect of low interest rates, but I conclude that although it is easy for someone with a large mortgage to celebrate them, they are the result of a financial and economic crisis, and for a lot of people they are not as much a benefit as they may believe. I am also sure that for many people (pensioners, for example) who did not take on a lot of debt, and saved for their future, low rates are not so welcome.

wotsthat

DervProf wrote: »

I see "the danger" as being people/the economy getting "hooked" on low base rates. If the BoE gradually raise rates when the economy improves, then it will be OK. If rates have to be raised for other reasons, then there could be problems.

The other issue may be that the BoE see the property market and possibly the wider economy improving, but decide to keep rates too low for too long, therefore starting another credit boom. It appears that after the recent credit boom "we got away with it". I'm not so sure that if we had another large expansion in personal borrowing that the BoE would be able to help out in the way that they recently have.

Maybe you worry too much. Although a rapid increase in rates during a recession is possible and so is a credit boom both currently seem unlikely.

I'm not sure anyone is 'hooked' on low rates either but say it's a real concern - what should be done?

DervProf

wotsthat wrote: »

Maybe you worry too much. Although a rapid increase in rates during a recession is possible and so is a credit boom both currently seem unlikely.

I'm not sure anyone is 'hooked' on low rates either but say it's a real concern - what should be done?

Although the issues I raised don't worry me personally, I am concerned about the wider economy and the future of our country.

What should be done ?

Well, since the early 2000's, it seems to me that the BoE set the base rate to suit what has happened, more than what they want to happen. They are more reactive than procative. The were good at "doing nothing" during the pre-2007 boom. "Yes, we target inflation, not house prices" is what I heard. And that was rather convenient, because inflation was low (and that was less to do with the base rate than other factors) and HPI was fairly high (but that wasn't of any concern). Today, they have had to lower the base rate to avoid a full on property market crash, and have little room to do anything about inflation, which has crept above target over a fairly long period of time.

BTW. In the meantime, pre-2007, the FSA were also good at "doing nothing", when a little action might have been wise.

Harry_Boyle

DervProf wrote: »

Today, they have had to lower the base rate to avoid a full on property market crash, and have little room to do anything about inflation, which has crept above target over a fairly long period of time.

I keep reading (on here) that we have the current low interest rates in order to prevent a housing crash. If this is the case, then why do so many other nations have the same low rates, many of which had a housing crash even with historically low rates?

Is it not the case that rates were lowered across the globe due to the banking crisis rather than UK house prices? I could be wrong, but it doesn't seem reasonable the the Fed Reserve, ECB and BoE (and other central banks) have all colluded together to lower rates in order to support UK house prices.

marathonic

The 5 year fixes are unbelievable value at the moment. I just hope they're still around when my current 2-year discounted deal ends!

HAMISH_MCTAVISH

johnny_storm wrote: »

I would agree, except for wage increases being in the 0% - 2% range, others finding their hours cut etc..

Household disposable income has been rising year on year for the last few quarters.

wotsthat

DervProf wrote: »

Although the issues I raised don't worry me personally, I am concerned about the wider economy and the future of our country.

What should be done ?

Well, since the early 2000's, it seems to me that the BoE set the base rate to suit what has happened, more than what they want to happen. They are more reactive than procative. The were good at "doing nothing" during the pre-2007 boom. "Yes, we target inflation, not house prices" is what I heard. And that was rather convenient, because inflation was low (and that was less to do with the base rate than other factors) and HPI was fairly high (but that wasn't of any concern). Today, they have had to lower the base rate to avoid a full on property market crash, and have little room to do anything about inflation, which has crept above target over a fairly long period of time.

BTW. In the meantime, pre-2007, the FSA were also good at "doing nothing", when a little action might have been wise.

So what should be done? You didn't say.

I think you're suggesting that the BoE should raise rates in anticipation of an unlikely credit boom at an unspecified future point which would also have the advantage of curing those people with 'low interest rate addiction'?

I'm actually quite surprised anyone still thinks that low interest rates are being maintained to prevent a housing crash.

Thrugelmir

wotsthat wrote: »

I'm actually quite surprised anyone still thinks that low interest rates are being maintained to prevent a housing crash.

Low interest rates are being used to maintain asset prices. If asset prices fall then banks will incur further losses and require further capital injection.

Japan's lost decade may well reflect the UK's future.