MPC gives forward guidance

Generali

Graham_Devon wrote: »

Yes. Inflation will fall back to 2% in around 2 years time. (again!)

It's all "past price increases" pushing it up. Straight from Carney's mouth. So if it's all past price increases not sure why it will take 2 years, but that's what was said and will no doubt be quoted in the media later as it didn't make much sense.

The whole thing was extremely wooly to be fair. Especially the forward guidance that can change if pretty much anything changes.

Seems to be doing the same as Mervyn King did, trying to state something but not wanting to state anything.

We'll have to wait I guess to see the reaction, certainly many from the reports I read wanted to see 0.5% interest rates pegged to 6% unemployment, so this may not cut it for them.

The piece you and others are missing in deciphering Mr Carney's statements is that it's inflation expectations that matter with monetary policy of this sort.

Don't take this at face value. What he is really trying to say is that we should believe him when he says that he has no intention of targeting inflation or looking at it in any way. Remember, he has no reason or compunction to tell the truth.

It's like a con man looking deep into your eyes and saying, "Trust me".

ruggedtoast

Generali wrote: »

The piece you and others are missing in deciphering Mr Carney's statements is that it's inflation expectations that matter with monetary policy of this sort.

Don't take this at face value. What he is really trying to say is that we should believe him when he says that he has no intention of targeting inflation or looking at it in any way. Remember, he has no reason or compunction to tell the truth.

It's like a con man looking deep into your eyes and saying, "Trust me".

Sigh. To fix or not to fix.

Generali

ruggedtoast wrote: »

Sigh. To fix or not to fix.

Fix IMHO. Rates can't get very much lower but they can get an awful lot higher.

andyroberts1967

ruggedtoast wrote: »

Sigh. To fix or not to fix.

I've got a lifetime tracker at base +2.27% with between 8 and 9 years left on my mortgage. I'm glad Carney has implied that barring unforseen circumstances, the base rate should be stable for up to 3 years. That would then leave me to arrange a possible 5 year fix in about 3 years time to run the rest of my loan down.
Personally I don't see any hurry to rush into any sort of fix, as I think fixed loans are probably going to be even cheaper if anything in the near to mid future.
It is something to ponder though, isn't it!
The other thing that puts me off fixing too is the huge fees that banks are charging. My mortgage is under £80k and I don't think I'd save much, if anything, by paying up to £2000 in a fee, to get a slightly cheaper fixed loan than the tracker I have now.

Generali

andyroberts1967 wrote: »

I've got a lifetime tracker at base +2.27% with between 8 and 9 years left on my mortgage. I'm glad Carney has implied that barring unforseen circumstances, the base rate should be stable for up to 3 years. That would then leave me to arrange a possible 5 year fix in about 3 years time to run the rest of my loan down.
Personally I don't see any hurry to rush into any sort of fix, as I think fixed loans are probably going to be even cheaper if anything in the near to mid future.
It is something to ponder though, isn't it!
The other thing that puts me off fixing too is the huge fees that banks are charging. My mortgage is under £80k and I don't think I'd save much, if anything, by paying up to £2000 in a fee, to get a slightly cheaper fixed loan than the tracker I have now.

You can get 2.49% with 2 grand in fees for 5 years, something you already know I suspect. That's about the same cost over the next 5 years as you already have if base rates remain the same with no risk of an increase.

Then there'll be beggur all principal left to pay any interest rate increase on.

Just a thought. Near term interest rates are much more expensive to you than further away ones because of the point you are at in your mortgage.

andyroberts1967

Hmm thanks Generali, that's given me food for thought. I always seem to see things back to front. I will work out the numbers, and consider my options.

Generali

andyroberts1967 wrote: »

Hmm thanks Generali, that's given me food for thought. I always seem to see things back to front. I will work out the numbers, and consider my options.

No worries.

How are your Excel skills? You can create a mortgage calculator fairly easily if you are ok with it. I made one which I can try to dig up if you PM me your email address otherwise.

wotsthat

Graham_Devon wrote: »

Stating that rates will remain at 0.5% until the employment rate falls under 7%.

However, there are a range of "buts" which may change this guidance. Firstly, if it effects price stability and secondly if it effects "any other financial stability".

So the promise is only a promise if it doesn't effect anything too much.

They will also continue QE if it is "required" and they will only reign in current QE if "it is required".

Apparently this all gives greater clarity over the stance of the BOE.

He's now gone on to say that it's important to state that this forward guidance is NOT a promise of keeping rates low.

I don't know if journalists don't listen properly but aside from his caveats about reasons to raise rates earlier he actually said that monetary policy would remain the same until at least the time that unemployment fell i.e. it could be longer.

Couldn't really see the point of it myself - pretty much what we all knew. Rates won't rise in the near term until the recovery is stronger unless they need to for other reasons.

I think the key message was on inflation (no BBC journalist picked up on this on the radio). Yes, there's a target but for the next two years it's in name only. i.e. with inflation higher than savings rates maybe we ought to consider either spending more or taking more investment risk.

I listened to it on 5-Live because I wanted to hear how vexed people got about it. Couple of interesting callers - one a chap who was delighted with the recession as he managed to save the difference between his old and new mortgage rates. When savings rates fell he used the savings to pay off a chunk of mortgage.

Another fellow (an angry saver for balance) who wanted better risk free returns on his savings but was being denied by colluding banks. He pointed out that it's simple for banks to take 'free' money and lend it out to make a profit. What he'd missed of course was that if it was such a guaranteed doddle he could take his savings and buy bank shares - the presenter didn't offer this solution.

ILW

Wonder what would happen if inflation hit say 10% but unemployment stayed over 7%? Would he let inflation go to any level at all, mid 70s style?

chucky

Graham_Devon wrote: »

The whole thing seems setup to answer nothing and say nothing. IMO anyway.

The market makers think that it answers more and says than nothing, in their humble opinion of course. Not that they are more qualified or more experienced than a great economist like yourself.