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

Harry_Boyle

Thrugelmir wrote: »

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.

It didn't work out very well for Japan's house prices in the past, not did it help Ireland, Spain, Portugal, the US and other countries who have low interest rates.

It seems a pretty poor and to be honest a very extreme measure to sustain the asset prices of a single commodity (house prices).

wotsthat

Thrugelmir wrote: »

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.

Low interest rates are intended to reduce the cost of borrowing to promote investment in the economy.

That may well lead to an inflation of asset prices but that's not quite the same as saying that's the intention of low rates. It's an even bigger step to suggest, as Dervprof did, that low interest rates are being used to prevent a crash in the UK housing market.

N1AK

HAMISH_MCTAVISH wrote: »

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

I'm correct in thinking that this doesn't account for (among other things):

1. inflation
2. decreased borrowing

Disposable nominal income would need to increase by 0.75% per quarter just to keep up with inflation which they haven't thus far; the decrease in debt and low interest rates have also tended help.

It's not catastrophic but it certainly seems like on average people have less money available now than they had even a couple of years ago.

DervProf

wotsthat wrote: »

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.

You think wrong about what I didn't suggest.

I will suggest (as I suggested several times ~ 2003 - '07) that the BoE should take note of the property market, and if it looks like it's "heating up" a bit too much, they should apply the brakes a little. That doesn't mean large and sudden increases in the base rates. A small rise, accompanied by a comment such as "we see the property market is becoming a little too inflated, a small rise was needed to help calm the market. We shall continue to monitor the situatuion."

Something like that ?

DervProf

wotsthat wrote: »

It's an even bigger step to suggest, as Dervprof did, that low interest rates are being used to prevent a crash in the UK housing market.

OK, the BoE didn't state that they were trying to prevent a property price crash.

Could it have crossed their minds when they were setting the base rate though ?

wotsthat

DervProf wrote: »

You think wrong about what I didn't suggest.

I will suggest (as I suggested several times ~ 2003 - '07) that the BoE should take note of the property market, and if it looks like it's "heating up" a bit too much, they should apply the brakes a little. That doesn't mean large and sudden increases in the base rates. A small rise, accompanied by a comment such as "we see the property market is becoming a little too inflated, a small rise was needed to help calm the market. We shall continue to monitor the situatuion."

Something like that ?

I'm just trying to pin this down. Is it your view that the property market is too inflated now and therefore rates should rise now?

I'd prefer that base rates were set based on the needs of the economy rather than just a part of it.

DervProf

wotsthat wrote: »

I'm just trying to pin this down. Is it your view that the property market is too inflated now and therefore rates should rise now?

I'd prefer that base rates were set based on the needs of the economy rather than just a part of it.

No.

On your second point, there are those that seem to think that the UK property market is a major part of the UK economy, and that if you get high HPI, you'll get a good economy. Well, you will in the shorter term, but if you let property markets get carried away, it has been known to cause problems.

HAMISH_MCTAVISH

DervProf wrote: »

the BoE should take note of the property market, and if it looks like it's "heating up" a bit too much, they should apply the brakes a little.

Define a "bit too much"?

That doesn't mean large and sudden increases in the base rates. A small rise, accompanied by a comment such as "we see the property market is becoming a little too inflated, a small rise was needed to help calm the market. We shall continue to monitor the situatuion."

Something like that ?

So they should increase base rates to suppress a property market rising primarily due to a shortage of houses.

Even when doing so would hurt, or be completely inappropriate for, the wider economy?

wotsthat

DervProf wrote: »

No.

On your second point, there are those that seem to think that the UK property market is a major part of the UK economy, and that if you get high HPI, you'll get a good economy. Well, you will in the shorter term, but if you let property markets get carried away, it has been known to cause problems.

You seem to be worried about an unlikely credit boom and people getting addicted to low rates, don't think rates need to rise now but think the BoE should monitor the property market way out of proportion to it's contribution to GDP. Sounds like you're not happy with something but aren't quite sure what it is.

Thrugelmir

Harry_Boyle wrote: »

It seems a pretty poor and to be honest a very extreme measure to sustain the asset prices of a single commodity (house prices).

I said asset prices (in a very general sense) not house prices.

Banks have far more on their balance sheets than just mortgages.