Bank considered half-point rate hike

bristolleedsfan

another base rate rise with savings rates increasing again looks likely by august it would appear :j

http://money.guardian.co.uk/businessnews/article/0,,2086153,00.html

MattB_4

Hope not! Causes me more work and stress than it's worth the extra % on my savings!

bristolleedsfan

Al_Mac wrote: »

Fingers crossed for June

unless comittee are sure that more than 0.25% increase was needed ( which is possible as we all know that 0.25% increases do very little to cool the economy) then imo likely hood is they will wait for a few more months data to see whether prev rises have had desired effect,in which case another rise wont occur until july or even august

i did see in paper today that vegetable prices are soaring cos of "hot weather", interest rate rises themselves will increase inflation, which is y tories got in a mess by promising no income tax rises ( something labour have continued" only tool tories had to cool the economy was interest rate rises ( bank of england committee also only have 1 tool to cool inflation) interest rate rises themselves increase inflation, interest rate rises alsoonly effect certain groups of people ie those who borrow and manufacturing whereas if tax rises were used to cool the economy everybody who "spends" would be affected and imo would be a better tool to cool the economy

RayWolfe

bristolleedsfan wrote: »

another base rate rise with savings rates increasing again looks likely by august it would appear :j

http://money.guardian.co.uk/businessnews/article/0,,2086153,00.html

Didn't read the article, but should we read anything into the fact that they considered 0.5%? Surely they also considered 0.0%. Perhaps I'm being short sighted ... as I do or perhaps the media are getting over excited ... as they do!

bristolleedsfan

RayWolfe wrote: »

Didn't read the article, but should we read anything into the fact that they considered 0.5%? Surely they also considered 0.0%. Perhaps I'm being short sighted ... as I do or perhaps the media are getting over excited ... as they do!

heres full minutes, no mention of anybody considering no base rate change, significance of members considering half a per cent rise is that further rises are probable sooner than later, i thought posting was usefull to those who might be considering 1 year or more fixed rate savings products

http://www.bankofengland.co.uk/publications/minutes/mpc/pdf/2007/mpc0705.pdf

ManAtHome

bristolleedsfan wrote: »

whereas if tax rises were used to cool the economy everybody who "spends" would be affected and imo would be a better tool to cool the economy

So people are going to stop borrowing if somebody else is paying half of it..? (unless you're a non-taxpayer of course, then you could really get the credit cards glowing)... not a good idea IMHO.

JDinho

bristolleedsfan wrote: »

unless comittee are sure that more than 0.25% increase was needed ( which is possible as we all know that 0.25% increases do very little to cool the economy) then imo likely hood is they will wait for a few more months data to see whether prev rises have had desired effect,in which case another rise wont occur until july or even august

i did see in paper today that vegetable prices are soaring cos of "hot weather", interest rate rises themselves will increase inflation, which is y tories got in a mess by promising no income tax rises ( something labour have continued" only tool tories had to cool the economy was interest rate rises ( bank of england committee also only have 1 tool to cool inflation) interest rate rises themselves increase inflation, interest rate rises alsoonly effect certain groups of people ie those who borrow and manufacturing whereas if tax rises were used to cool the economy everybody who "spends" would be affected and imo would be a better tool to cool the economy

I'm intrigued by your statement that interest rate rises increase inflation... My assumption is that increases to interest rates effectively reduce money supply which (by the application of basic economic theory) reduces inflation as there is simply less money available to be spent.

If you believe that tax increases will control inflation what tax increases are these? Income tax? Corporation Tax? Value Added Tax? How will tax increases affect borrowings?

ManAtHome

I can believe that interest rise increase inflation - if you have less cash to spend you still have to cover the essentials (which are going up in price), which leaves you with less dosh for the non-essentials (which are going down in price) so the "average spend" is directed more towards stuff which is going up.

However, the same holds for increases in tax...

bristolleedsfan

JDinho wrote: »

I'm intrigued by your statement that interest rate rises increase inflation... My assumption is that increases to interest rates effectively reduce money supply which (by the application of basic economic theory) reduces inflation as there is simply less money available to be spent.

If you believe that tax increases will control inflation what tax increases are these? Income tax? Corporation Tax? Value Added Tax? How will tax increases affect borrowings?

morgage rates and payments rise as a result of base rate increases, i believe morgages are included in inflation figures, ( i stand to be corrected)

tax rises ie income tax rises merely give people less money in their pocket to spend and is spread more evenly than interest rate rises so consumer spending is reduced without hurting manufacturing and without inncreasing inflation, manufacturing costs increase as a result of interest rate rises which if passed onto consumers lead to higher inflation as well, interest rate rises give more money to certain members of the population ie savers which can lead to higher consumer spending which again can lead to higher interest rates

u shouldnt assume people have to borrow, i was brought up to live within my means and dont have what u cant afford so ive never borrowed anything apart from taking out a morgage when i was 18 which was paid off at age of 26 :cool:

padders_2

a) Mortgage payments are not included in either CPI or RPI, so no - inflation does not count mortgages and by virtue house prices (or any other asset class) either. Rent is however included.

b) Tax rises, with no corresponding increase in government spending, will decrease inflation. A tax rise reduces aggregate demand which reduces inflation. Interest rate rises reduce inflation for a number of reasons, firstly the act like a tax on people in debt reducing aggregate demand. Secondly, higher interest rates increase the benefit of deferring consumption to the future, ie people save more, thirdly there are liquidity issues, velocity of money issues but that is getting a bit complicated.

I can believe that interest rise increase inflation - if you have less cash to spend you still have to cover the essentials (which are going up in price), which leaves you with less dosh for the non-essentials (which are going down in price) so the "average spend" is directed more towards stuff which is going up.

However, the same holds for increases in tax...

This is incorrect. Firstly, there is nothing to suggest that all essentials are going up in price but non-essentials are going up slower. For example public school education has seen much higher inflation rates than say council tax bills. However, even accepting your incorrect permise your conclusion does not follow, a redunction in aggregate demand for even low inflation goods will have a corresponding decrease in total inflation.

jamesd

JDinho, there's already a National Insurance tax rise next April for those currently paying 1% employee NI. No corresponding increase in NI benefits so it's almost pure tax above the upper earnings limit.