Bank considered half-point rate hike

corngoat

I think one of the main problems is that only 40% of mortgages are variable rate (I read this somewhere). This means that the base rate rise is not having the desired effect of stemming the flow of cash for the majority of people.
Yes, I know a lot of people have other variable rate loans, overdraft, credit cards and the like but the biggest loan and the largest financial commitment for most is the monthly mortgage repayment.
Interest rate hikes also effect business, which in some cases leads to these businesses having to increase prices which itself is inflationary.

Perhaps what is needed is a ‘short sharp shock’ of a large base rate rise to stem housing inflation or even correct the housing market with a drop in prices (the current house price inflation cannot be sustainable for much longer - can it! ) which in turn would reduce consumer spending and inflation – trying for that unlikely soft landing.

JDinho

jamesd wrote: »

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.

Taken from the BBC's Budget page regarding the rise in NI:

WINNERS AND LOSERS

• Anyone earning between about £17,000 and £40,000 a year will be better off
• Those earning less than about £17,000 will lose from the abolition of the 10p tax rate but they should more than claw it back from working tax credit
• Those on £43,000 will pay £20 a year more in tax

All figures for 2008. Source: PriceWaterhouseCoopers

Effectively there is very little change, so I would not say that this tax will have any impact.

I read very recently that rates may have to go higher and for longer, possibly three years, to have any impact on those with fixed rate mortgages. The article highlighted that the amount of fixed which had created a different environment, one that needed a different approach with interest rates.

bristolleedsfan

padders wrote: »

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.

u will find that im rarely wrong

"Mortgage Payments Hike Up Inflation
Money – The Office For National Statistics (ONS) said the Retail Prices Index (RPI), which includes mortgage payments, jumped to 4.6% in February from 4.2% the previous month. That was its highest level since August 1991 and will fuel concerns that interest rates may rise again next month"
http://money.netscape.com/story/2007/03/20/mortgage-payments-hike-up-inflation/



QUOTE=corngoat;5267315]I think one of the main problems is that only 40% of mortgages are variable rate (I read this somewhere). This means that the base rate rise is not having the desired effect of stemming the flow of cash for the majority of people.
Yes, I know a lot of people have other variable rate loans, overdraft, credit cards and the like but the biggest loan and the largest financial commitment for most is the monthly mortgage repayment.
Interest rate hikes also effect business, which in some cases leads to these businesses having to increase prices which itself is inflationary.

Perhaps what is needed is a ‘short sharp shock’ of a large base rate rise to stem housing inflation or even correct the housing market with a drop in prices (the current house price inflation cannot be sustainable for much longer - can it! ) which in turn would reduce consumer spending and inflation – trying for that unlikely soft landing.[/QUOTE]

i totally agree with you, its also fair to say that a very large part of the population neither have morgages nore borrow via cards and loans etc, while u will always hear about those who are in debt u never hear about those who are solvent ( doesnt make an interesting story does it)

free4440273

uk rates set to rise?
http://video.ft.com/ukdailyvideo/?clipid=1359_FT0263

IGK

bristolleedsfan wrote: »

u will find that im rarely wrong

"Mortgage Payments Hike Up Inflation
Money – The Office For National Statistics (ONS) said the Retail Prices Index (RPI), which includes mortgage payments, jumped to 4.6% in February from 4.2% the previous month. That was its highest level since August 1991 and will fuel concerns that interest rates may rise again next month"
http://money.netscape.com/story/2007/03/20/mortgage-payments-hike-up-inflation/

I think there is some confusion as to exactly what we mean by inflation.

RPI (Retail Prices Index) inflation does include mortgage interest payments, and so an increase in interest rates will cause the mortgage interest portion of the RPI to increase.

CPI (Consumer Price Index) inflation does not include mortgage index payments and is not directly affected by interest rate movements in the way that RPI is.

The important point is that it is the CPI that the Bank of England targets, and sets interest rates accordingly. The CPI target is 2%, and the Bank must keep CPI less than 1% away from that target in order not to have to write an explanatory letter to the Chancellor, which it had to do last month.

Therefore as far as the Bank of England is concerned, increasing interest rates does not increase inflation, indeed it is certainly their intention (quite sensibly) that it decreases it!

Froglet

According to this article

http://news.bbc.co.uk/1/hi/business/6682971.stm

we shall soon be comparing accounts all over again.Gosh we have hardly got our breath from this last one!!

People with mortgages will be gutted of course,but as someone who took out a mortgage at 15.4% years ago,I knew my time would come eventually!

jamesd

corngoat wrote: »

only 40% of mortgages are variable rate ... This means that the base rate rise is not having the desired effect of stemming the flow of cash for the majority of people. ... Perhaps what is needed is a ‘short sharp shock’ of a large base rate rise to stem housing inflation or even correct the housing market with a drop in prices

People are locking in the current rates with fixed rate mortgages and that will allow the Bank to lower rates and exploit the overhang of two or three years of higher mortgage rates. So, high for long enough for lots of fixed rate deals to end, then the rates will work on household spending for another 2-3 years.

The penalties to leave those deals may also increase their reluctance to move and produce a reduction in demand for second time and later homes, a sector that's already showing some signs of weakness compared to first time properties.

JDinho wrote: »

Anyone earning between about £17,000 and £40,000 a year will be better off

Try putting 35000 or higher in the BBC's budget calculator and you'll find that someone earning 35000 is 57.70 worse off, better by 51.40 from the tax but worse by 109.09 from the NI. That continues until 38000 but at 39000 the higher rate tax threshold increase produces an improvement of 62 and that grows until the higher rate threshold is reached.

It's a pretty minor change, though - too fine in detail for a summary box overview.

ManAtHome

padders wrote: »

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.

From recent stats, food and petrol (both with significant CPI weightings appear to be going up quickly. Will people really halve their spending on these if disposable income drops?

Public School education an "essential"..?

cloud_dog

Sorry, had to post...............

Interest rates do not fuel inflation, money supply fuels inflation. IR may affect or be included in calculations that attempt to reflect inflation but it does not increase inflation.

And as we all know the 'basket' used to calculate / reflect inflation is changed periodically.

cloud_dog

free4440273

...agreed, and it is indeed unprecedented growth of money supply ('liquidity'), both here and across the Atlantic, that is giving cause for concern and has the potential to provide future rate increases