Tide turning for interest rates?

Thrugelmir

Glen_Clark wrote: »

I should have added the Bank of England has predicted interest rates staying low

BOE base may well stay low. However the market may demand a higher rate of return to invest. Rising Gilt yields suggest that the halcyon days are over. The UK will have to address it's debt burden in a more aggressive manner. As servicing costs will compound the issue of the budget deficit.

Seemed envitable that markets would ultimately determine that interest rates should rise.

melbury

Thrugelmir wrote: »

BOE base may well stay low. However the market may demand a higher rate of return to invest. Rising Gilt yields suggest that the halcyon days are over. The UK will have to address it's debt burden in a more aggressive manner. As servicing costs will compound the issue of the budget deficit.

Seemed envitable that markets would ultimately determine that interest rates should rise.

Hopefully sooner rather than later;)

lvader

Thrugelmir wrote: »

Seemed envitable that markets would ultimately determine that interest rates should rise.

Increasing interest rates won't help lower gilt yields, extra QE would.

Glen_Clark

lvader wrote: »

Increasing interest rates won't help lower gilt yields, extra QE would.

only up to a point. The BoE has increased the demand for their bonds by printing money to buy them themselves, as an emergency measure to buy time to fix the underlying problems. But that time has been wasted, the underlying problems remain. Even Carney has admitted QE is a 'very blunt instrument' QE causes inflation, and investors will be repelled by bonds in a currency that is likely to suffer high inflation. So you reach a point where QE will increase bond yields.Like Zimbabwe - if printing money always lowered interest rates theirs would be the about the lowest in the world, instead of the highest. All this talk of 'Forward Guidance' is designed to stave that point off until after the election. But the BoE's record on inflation forecasting is now such that when they say one thing, the market reacts as though they expect the opposite to happen.:o

lvader

The pound has strengthened since QE was introduced, and the effects on inflation are debateable since the US has done vast QE and has low inflation. Even the ECB has done some form of QE, it hasn't afected the EUro and again low inflation. QE will always lower gilt yeilds because it takes gilts off the market so increases domand. We ae not Zimbabwe!

talexuser

Thrugelmir wrote: »

The UK will have to address it's debt burden in a more aggressive manner. As servicing costs will compound the issue of the budget deficit. Seemed envitable that markets would ultimately determine that interest rates should rise.

I wonder if this will blow the election strategy off course? Today it is reported that the growth figures (a magnificent 0.7%) ahead of projection mean Osbourne is riding high, the opposite of last years "omnishambles", and the government think that the timing of the pre-election mini boom is just right.

Thrugelmir

talexuser wrote: »

I wonder if this will blow the election strategy off course?

Not a strategy, a slice of good fortune that they've remained so low for so long.

Appears that German , Spanish and Italian banks still have issues to resolve. Once German elections are out the way. Then Europe may come to the top of the agenda again.

bigadaj

lvader wrote: »

The pound has strengthened since QE was introduced, and the effects on inflation are debateable since the US has done vast QE and has low inflation. Even the ECB has done some form of QE, it hasn't afected the EUro and again low inflation. QE will always lower gilt yeilds because it takes gilts off the market so increases domand. We ae not Zimbabwe!

Yes but QE is funded by boe, and whilst boe have a balance sheet they are guaranteed by UK government. We therefore have gilts effectively being issued by UK government and bought by UK government, so were borrowing money from ourselves, not Zimbabwe but not filling ourselves with confidence.

lvader

bigadaj wrote: »

Yes but QE is funded by boe, and whilst boe have a balance sheet they are guaranteed by UK government. We therefore have gilts effectively being issued by UK government and bought by UK government, so were borrowing money from ourselves, not Zimbabwe but not filling ourselves with confidence.

Actually it was the ability to do QE that created the confidence for the pound to appreciate when Europe looked doomed. Printing money is better than a bailout or a default it seems.

bigadaj

lvader wrote: »

Actually it was the ability to do QE that created the confidence for the pound to appreciate when Europe looked doomed. Printing money is better than a bailout or a default it seems.

Possibly, economists seem to re write the rules as they go along. Not sure I agree with your appreciation theory though, as the euro is the 'winner' on that basis over the recent past, though the major central banks are competing to devalue their currencies, so the duo is losing.

We all seem to be screwed when any positive economic data leads to market falls on the basis that if things are improving artificial support will be removed, totally crazy.