MPC may raise Interest Rates to 6% in August!

Generali

Interesting news from the US.

Interest rates being charged to big companies have risen by 1.5% over the past month meaning a rise in the interest charge of about 20%!

For the most part, US mortgagees are insulated from short term changes in the credit market as they have long term fixed rates. That's one of the reasons why the sub prime/Alt-A thing is such a scandal.
In the UK, we tend to have short term fixes or floating mortgages. The Fed has been unable to keep rates down in the market now that the appetite for risk has dropped in the US - they have pretty much lost control of interest rates.

If the BoE also loses control of interest rates, there will be a lot of pain very quickly as banks will have no choice but to raise rates on credit cards and mortgages.

I'm not saying it will happen but in the UK we are rarely immune from the US economy. Perhaps its different this time. We'll see.

dannyboycey

No chance of an August rise in my opinion. Not after the floods.

They'll wait till Sept/Oct.

Melissa177

Why would the floods affect the IR rise directly?

Drinking with some interest rate brokers last night, they reckoned a hold in August too.

sm9ai

The flooding is irrelevant to them. They would not be doing their job properly if they held off in sympathy for the flood victims.

However it will probably be a hold, then raise in September.

Guy_Montag

When does the next inflation report get published?

Melissa177

Next inflation report is released in August - so they may hike on the back of that.

I'm quite surprised that the City is betting the other way, given that they usually bet on a hike at inflation report month.

Guy_Montag

I would say the same, but then CPI is quite low & dropping (though core inflation is up apparently).

Rover

The flooding shouldn't DIRECTLY influence the MPC and neither should terrorist threats. But the latter has and the former probably will.
I'd be surprised with a 'back to back' rate rise. I'd favour another 0.25 in September. Poor handling imho, but hey, what do i know.

As an aside, I was recently told be an informative person, that we - the great British public - are the last to know/react to the market situation.
Institutional investors always 'know' before us. We suffer more and later. Take a look at the share performance of any of the large builders over the last 3 months???? Do they know something we don't ?

phlash

The next inflation report is out on the 8th of August, with the MPC's interest rate decision on the 2nd August. This is always an interesting one, because the MPC get sight of the inflation report whilst making August's decision. If the report is not favourable I suspect they will raise despite floods and back to back raises. The next CPI figure is out on the 14th August aswell.

I suspect that they will not raise, but there will be a couple of votes of +0.25% from Merv and John Gieve. But Rachel Lomax and David Blanchflower will definately vote hold, which leaves the swingers who I am guessing will not want to 'shock' people too much, and will want a 'wait and see' approach. By doing that, they will get news of the inflation report and CPI figure in the following two weeks of the meeting, giving them perfect justification and media coverage to raise by 0.25% in September without it being too much of a shock.

It's interesting to see how this split in the MPC's view pans out, I'd like to be there in the meetings, I think Merv is finding Rachel Lomax difficult!

Rover

Merv suggested recently that the MPC members be held accountable for their voting record.
Blanchflower is either an idiot or has interests to protect.