MPC may raise Interest Rates to 6% in August!

buglawton

Energy up 20% last year. Petrol up 10% on this time last year. Parcelforce just increased our contract prices 7% across the board. Rates up 7% on last year. The BBC should define and quote a real cost of living index as the headline one and give the govt. defined one (a shopping list of selected retail items) as the subsidiary one. The real one should also include the cost of mortgage borrowing of course.

Generali

buglawton wrote: »

Energy up 20% last year. Petrol up 10% on this time last year. Parcelforce just increased our contract prices 7% across the board. Rates up 7% on last year. The BBC should define and quote a real cost of living index as the headline one and give the govt. defined one (a shopping list of selected retail items) as the subsidiary one.

This is one of the reasons that rates won't be going up in August or even possibly again this year:

Bloomberg link

Designer Craster, 33, said a new mortgage ``is going to cost me an extra 200 to 300 pounds a month, easily.'' After considering the impact on his beer budget, he said he may take more drastic action.
``I may think about selling,'' he said after cycling to visit a client to save a one-pound bus fare. ``It's getting too expensive to live in London.''

There may well be no need as it looks like the credit squeeze/crunch and the previous rises feeding through are starting to have an impact.

buglawton wrote: »

The real one should also include the cost of mortgage borrowing of course.

This is measured: it's the RPI, it's just not targeted. The reason given was that the UK should use the same measure of inflation as the ECB in case the pound became part of the Euro.

The MPC has requested that housing costs now be included in the targetted inflation rate.

buglawton

The BBC should have a based-on-reality cost of living index that it always quotes as the headline rate. The RPI can be quoted as a subsidiary one for comparison. This might make it a little harder for Gordon Brown to hide behind the Bank of England's skirts.

epz_2

am i the only one concerened that we are being softened up for large food price rises already, should be of concern but i doubt they will worry about it now.

Generali

buglawton wrote: »

The BBC should have a based-on-reality cost of living index that it always quotes as the headline rate. The RPI can be quoted as a subsidiary one for comparison. This might make it a little harder for Gordon Brown to hide behind the Bank of England's skirts.

It's an interesting idea.

The real problem with inflation is how to measure it. Each of us has our own inflation rate (what's the point in including rental costs for a homeowner or cigarettes for a non-smoker for example?).

If you have a system of fiat money that you want to defend the value of you either target the supply of that money (as was done by the Fed in the late 70s for example) or you defend the value of it by using an inflation proxy like the CPI. There isn't a perfect way to do this.

buglawton

I agree that's the principle. The Service component of the UK economy has grown a lot, I think the CPI is getting more & more out of date as a suitable proxy.

In a way the CPI is a measure of the things we buy with the money we have left AFTER a lot of fixed expenditures have been taken care of.

mystic_trev

I doubt IR's will be raised in August, but the outlook for CPI isn't looking good due to the recent flooding.

Damage done to Britain’s farmland by the floods of the past two months could trigger a surge in supermarket prices of many seasonal crops and play havoc with the Bank of England’s attempts to quell inflation, economists believe.

http://business.timesonline.co.uk/tol/business/money/consumer_affairs/article2163553.ece

free4440273

free4440273 wrote: »

...inflation is STILL a problem however (and a massive problem) - they can't disguise that: a .50 increase in september would be the last increase for a very long time. see my previous post above as to why. i know it sounds mad, and unlikely but still a possibility when you consider inflation is out of control. as i say, a .50 increase would be the last (and also the final nail in the coffin). BofE credibility restored and inflation knocked on the head (or at least wounded), and house price decreases (not increases) ensue.

this gives credence to at least some of what i have been trying to say. anyhow, regarding tomorrow, they simply will not have the guts to raise rates even though that would be the correct thing to do. September it is then. perhaps another one in October, although by then (call me superstitious) i think we are headed for a massive stock market correction (it always is October). they can't raise rates in November - just too close to Xmas.

Generali

IMO, the likelihood of a rate rise has fallen pretty dramatically in the past couple of weeks. Swap rate was down about 0.09% overnight from what I saw at Big Bank at lunchtime.

If food prices due to the flooding push up the CPI, the bank can always say (correctly) that this is a one-off increase that will pass. It's ok so long as inflationary expectations don't rise.

As for a crash in October? Mark Twain put it well:

Markets always crash in October....and November and December and January.....

The stock market seems to be doing a pretty good job of crashing at the moment. It's given up about all of it's rise this year. Past 6 days (as per FT.com):

25/7: -0.68%
26/7: -3.15%
27/7: -0.58%
30/7: -0.15%
31/7: +2.48%
01/8: -1.72%

adr0ck

i think interest rate will be

5.75% at the end of the month

just my 2 pennies