MSE News: 'Interest rates could rise at turn of the year'

roddydogs

Havent we hear this before? Didnt happen then either.

ruggedtoast

Isn't inflation low? How does raising rates work with the 2% target.

Generali

ruggedtoast wrote: »

Isn't inflation low? How does raising rates work with the 2% target.

It takes 18 months - 2 years for monetary policy to move through the economy completely so the Central Bank has to look at what is likely to happen over the course of the next couple of years.

If we look at the economy:

- Input price falls are dropping out of the inflation figures (they are a one-off drop, not an ongoing fall)
- Rising employment and falling unemployment seems to be pushing up wage inflation
- Confidence seems to be returning to the economy which may lead to more consumption so people prepared to pay a little more for goods.
- Banks seem to have sorted themselves out regarding higher reserve levels so should be able to lend more.

Those are all things that could point to higher inflation. I'm sure that I could equally write a list pointing to inflation staying low (secular stagnation, Iranian oil, shale gas, falling commodity prices, falling Chinese growth, Eurozone collapse).

Time, as ever, will tell.

purch

ruggedtoast wrote: »

Isn't inflation low? How does raising rates work with the 2% target.

Not normalising policy when it is required will blow the target out of the water.

As the Governor has said, we will have a much clearer idea of what might be required at the start of 2016. Until then, everything is pure speculation.