Could the UK be the first to raise interest rates?

Graham_Devon

Peston seems to think so. Infact, he believes it would be extraordinary if we didn't...

After the crash of 2008, the UK was a pioneer in reducing interest rates to as close to zero as makes little difference, and was the first in the rich West to create hundreds of billions of pounds of new money through quantitative easing.

It now looks as though we may be the first to use so-called macro-prudential tools to curb an incipient housing bubble: it would be extraordinary if the the Bank of England's Financial Policy Committee did not in coming weeks force banks to ration the provision of higher risk mortgages or make it more expensive to provide mortgages (by increasing the capital banks have to hold for mortgages) or both.

And it would be equally odd if the Bank did not become the first of the important developed-country central banks to start increasing interest rates above the near zero that has prevailed since the onset of the Great Recession.

And thought for the day...

Is it good or bad that the UK is likely to raise rates first?

Well perhaps it means that our economy is in more robust health than the others. Or it might mean, less charitably, that we are more prone to asset bubbles and excessive consumer spending than the rest.

http://www.bbc.co.uk/news/business-27325791

[Deleted User]

i dont see what harm a 0.5% inc in base rates would do,especially when so many people are paying as much as 4000% apr

purch

No, but we will be the second.

chewmylegoff

I'm not sure cutting interest rates to 0.5% about three months after the fed reduces the US interest rate to 0.25% qualifies the UK as a "pioneer", even ignoring Japan...

The US started quantitative easing several months before us as well (although if we want to split hairs it is correct to say we were the first to "create hundreds of billions of pounds" but only because we are the only country to carry out QE in pounds).

So, it's +1 for second.

IveSeenTheLight

Graham_Devon wrote: »

Peston seems to think so. Infact, he believes it would be extraordinary if we didn't...

It now looks as though we may be the first to use so-called macro-prudential tools to curb an incipient housing bubble: it would be extraordinary if the the Bank of England's Financial Policy Committee did not in coming weeks force banks to ration the provision of higher risk mortgages or make it more expensive to provide mortgages

http://www.bbc.co.uk/news/business-27325791

They may not need to increase interest rates to increase the cost of mortgages.
There was a report out yesterday already stating that "Mortgage prices edging up – despite base rate staying at 0.5%"
http://www.moneysavingexpert.com/news/mortgages/2014/05/mortgage-prices-edging-up-despite-base-rate-staying-at-0-5

shortchanged_2

IveSeenTheLight wrote: »

They may not need to increase interest rates to increase the cost of mortgages.
There was a report out yesterday already stating that "Mortgage prices edging up – despite base rate staying at 0.5%"
http://www.moneysavingexpert.com/news/mortgages/2014/05/mortgage-prices-edging-up-despite-base-rate-staying-at-0-5

Removal of FFL one would assume.

Generali

shortchanged wrote: »

Removal of FFL one would assume.

Seems likely.

I'm with purch. The MPC will follow the Fed up just as they followed the Fed down. First rise? Q 1-2 2015 is my guess. Nothing to do with the general election though.

GeorgeHowell

After the general election the "independent" Bank of England will be free to do as it sees fit for a while, so it depends whether somebody else jumps in first before that.

theEnd

The UK will leave it as late as possible to raise rates. If US/EU raise and we see a recovery in the UK, then we'll see internal and external inflation pressure. Eventually they'll have to raise, which in turn will kill the housing market, which in turn will kill the economy.

Can't see an easy way out.

CLAPTON

presumably the drivers for an increase in base rates will be wage inflation, asset price inflation especially housing


we will have a wait a few months to see if the new MMR rules for mortgage cool the house price rises but if not, we will see some sort of action.
That may not be interest rates but higher deposits, scrapping of HTB or restriction to FTBers only.
If USA increases their rates when there will be pressure for UK to follow to stop the pound from devaluing too much

Bantex_2

theEnd wrote: »

The UK will leave it as late as possible to raise rates. If US/EU raise and we see a recovery in the UK, then we'll see internal and external inflation pressure. Eventually they'll have to raise, which in turn will kill the housing market, which in turn will kill the economy.

Can't see an easy way out.

Hopeful the economy will be a bit more than just the housing market by then.