BoE warns of risks of rate rises.

shortchanged_2

http://www.bbc.co.uk/news/business-23061790

So is this to be dismissed by some on here that feel that quite small rate rises will not be a problem for many householders in the UK.

Maybe the BoE is also starting to realise and see the risk of borrowing large amounts on low interest rates and the potential future risk of this.

Common sense really.

Carl31

I think these warnings are probably a bit late for a few people

michaels

shortchanged wrote: »

http://www.bbc.co.uk/news/business-23061790

So is this to be dismissed by some on here that feel that quite small rate rises will not be a problem for many householders in the UK.

Maybe the BoE is also starting to realise and see the risk of borrowing large amounts on low interest rates and the potential future risk of this.

Common sense really.

Great news. With the economy so sensitve to interest rate increases there will be no need for large increase to damp down on demand and control any resurgence of inflation - thus low and stable interest rates can be maintained long term leading to a benign climate for business investment and long term productivity and hence real GDP increases. :T

Graham would you prefer if the economy was very insensitive to interest rates so that large increase were required to impact on activity and inflation thus leading to much more 'stop-go' type policies which are likely to result in low investment and less long term growth?

ILW

michaels wrote: »

Great news. With the economy so sensitve to interest rate increases there will be no need for large increase to damp down on demand and control any resurgence of inflation - thus low and stable interest rates can be maintained long term leading to a benign climate for business investment and long term productivity and hence real GDP increases. :T

Graham would you prefer if the economy was very insensitive to interest rates so that large increase were required to impact on activity and inflation thus leading to much more 'stop-go' type policies which are likely to result in low investment and less long term growth?

Err, inflation is showing no signs of going anywhere near it's target for quite a while. I suspect that inflating away debt will be the "solution" (for a while anyway).

wotsthat

shortchanged wrote: »

So is this to be dismissed by some on here that feel that quite small rate rises will not be a problem for many householders in the UK.

Maybe the BoE is also starting to realise and see the risk of borrowing large amounts on low interest rates and the potential future risk of this.

Probably why Mervyn King said that rates are unlikely to return to normal anytime soon.

Bank of England governor Sir Mervyn King has warned that world economies are "nowhere near" a return to "normal" interest rates.

Sir Mervyn was speaking in his last public appearance as governor, in front of the Treasury Committee.

He said that the unwinding of stimulus measures and raising of interest rates would only come after a significant economic improvement.

I think homeowners could afford rate rises but don't tell - we're trying to convince everyone that we're 'frightened and indebted'. Keep up the good work Shortchanged.

wotsthat

ILW wrote: »

Err, inflation is showing no signs of going anywhere near it's target for quite a while. I suspect that inflating away debt will be the "solution" (for a while anyway).

How long will it take to inflate away a trillion pounds worth of debt at 2.7%?

michaels

ILW wrote: »

Err, inflation is showing no signs of going anywhere near it's target for quite a while. I suspect that inflating away debt will be the "solution" (for a while anyway).

I'm not disagreeing that an attempt is being made to 'inflate away' govt and private debt or at least to stop it increasing in real terms.

However that does not impact in any way on my (and Mr Tucker's) arguement that if the economy is very sensitive to interest rates then only a small increase would be needed to stop the economy in its tracks and thus bear down on inflation if it was decied that reducing inflation was a policy objective.

lisyloo

How long will it take to inflate away a trillion pounds worth of debt at 2.7%?

A very log time, but if we can't pay it back then what's the alernative?

chucknorris

Wow they are warning us that someday rates might by rise by 1 or 2% all I can say is Yahoo! Certainly looks a while before the BOE base rate goes back to 5.5% then.

shortchanged_2

But surely this is a warning to everyone about the risks of taking out large mortgage debts and the drag they will be on any potential recovery in the economy.

michaels

wotsthat wrote: »

How long will it take to inflate away a trillion pounds worth of debt at 2.7%?

Pretty much the same length of time that it will take to inflate away any other size of debt with negative real interest rates. If debt to GDP ratio is the problem then keeping nminal GDP increasing faster than debt will bring the ratio down.

The debt holders are taking a haircut of course but as I tire of saying: they have already lost their money, it can not be repaid so they can choose to see the losses crystallised in a big bang of multiple bankruptcies and haircuts where the amount of loss will be maximised as assets are sold at fire sale prices, or through a gradual process of year on year losses as the result of negative real interet rates.