BOE MPC - Interest Rates remain at 0.5%

Graham_Devon

Seems the BOE are getting a bit of a rough ride today. Firstly there was the cheif investment bloke at Fidelity stating that Carney has been far too aggressive in regards to his approach for making statements which he then changes his mind on - almost constantly.

Then there has been an accusation that the BOE are merely following trends and reporting what's happening, rather than looking forward or doing anything to change what's happening - hence always being "surprised" and having to alter, downgrade etc.

Now, before anyone jumps on me - I'm not suggesting it's easy to forecast this stuff. But it appears the US, for example seem to be doing a much better job of not only the forecasting but also sticking to their word. They have the same issues as the BOE do when it comes to forecasting, so where are we going wrong?

michaels

Graham_Devon wrote: »

Now, before anyone jumps on me - I'm not suggesting it's easy to forecast this stuff. But it appears the US, for example seem to be doing a much better job of not only the forecasting but also sticking to their word. They have the same issues as the BOE do when it comes to forecasting, so where are we going wrong?

Could be that the US economy is 90% domestic where as the IK is less than 70% so 'external factors' will have a much bigger impact on us than them....

cells

Graham_Devon wrote: »

so where are we going wrong?

because the financial wiz kids in the city dont understand engineering science and business as well as they should and instead look to some silly 'norm' to try to revert to

The world is heading to 0% real interest rates (or even slightly negative) for good reason and its going to stay there.

I dont think we will see real interest rates over 0% for the next 20 years.

westernpromise

I can't remember when I first started saying "We aren't even half way through the era of ultra low rates" and "the next change in mortgage rates might well be down", but whenever it was, I am still saying both. We've been at 0.5% for 7 years and all the news is deflationary; now we hear there's a 30% chance of a rate cut, at which point my BTL tracker rate will presumably drop to 1.04%.

Nice one Cyril, think I'll go buy some new segs for my shoes (retro 'golden age' references just for Graham, there).

Bearish for rents, though, I would say. If it gets even cheaper to own rather then rent we can expect a bit of an exodus from renting.

Thrugelmir

westernpromise wrote: »

at which point my BTL tracker rate will presumably drop to 1.04%.

Check there's no collar. Lessons were learnt from the GFC.

Generali

cells wrote: »

because the financial wiz kids in the city dont understand engineering science and business as well as they should and instead look to some silly 'norm' to try to revert to

The world is heading to 0% real interest rates (or even slightly negative) for good reason and its going to stay there.

I dont think we will see real interest rates over 0% for the next 20 years.

I'd be quite careful about basing any long term financial decisions on interest rates not rising for a decade let alone two.

Services are the parts of CPI that are least impacted by the falling oil price and make up just almost 47% of the CPI weights. The cost of those items rose by 2.9% in the year to December 2015 and 0.7% in the month of December alone. It's the fall in the oil price and other commodities pushing down the price of real goods that is keeping inflation so low, especially the fall in food prices. It is hard to see how long meat prices can continue to fall by 5% a year for example.

The big increases that are coming to the minimum wage must surely be inflationary as, so landlords seem to claim, will be the big tax hikes on BTL.

While the MPC was happy to see inflation of ~5% when unemployment was high, I can't see them being quite so sanguine about it now unemployment is 5.2% and falling fast.

This time it's different are the four most expensive words you'll ever hear.

westernpromise

Thrugelmir wrote: »

Check there's no collar. Lessons were learnt from the GFC.

It's a 20-year tracker taken out in 2007 so no collar.

westernpromise

Generali wrote: »

The big increases that are coming to the minimum wage must surely be inflationary as, so landlords seem to claim, will be the big tax hikes on BTL.

Personally I don't think the tax hikes will be inflationary because so few landlords are affected by them and because the marginal landlord's costs don;t determine rent. If they did rents would have fallen when mortgage rates did. Rents correlate inversely with house price trends, so falling prices = rising rents and vice versa.

This time it's different are the four most expensive words you'll ever hear.

I'm thinking this time it's going to be the same - as 1700 to 1970, broadly. 1970 to 1995 was the real 300-year aberration.

Thrugelmir

westernpromise wrote: »

It's a 20-year tracker taken out in 2007 so no collar.

As long as you've read the small print.

westernpromise

Thrugelmir wrote: »

As long as you've read the small print.

I do wonder if they'll try to find a way to welsh on it at some point. If they were going to, I'd have thought they'd have done so 7 years ago, though.