Bank of England rates could rise more than thought

lisyloo

The outlook may change but I think these warnings are helpful for people in general as they can adapt their plans e.g. consider taking fixes, if they are aware this might happen.

When the fact change, I change my mind. What do you do?

GreatApe

What's the problem? The last 10 year averaged inflation rate has been 2.8% which is pretty spot on for the 2-3% target and the economy is in good nick we have full employment the 6+ month unemployment rate is close to 1%

Filo25

Nobody wants to start raising rates into a weakening economy, I think the previous consensus was that stronger global growth was helping the UK economy accelerate somewhat, so higher growth and more inflationary pressures, we have seen a few data points now that have cast doubt on that belief so no doubt the BoE will continue to watch with interest.

tara747

GreatApe wrote: »

What's the problem? The last 10 year averaged inflation rate has been 2.8% which is pretty spot on for the 2-3% target and the economy is in good nick we have full employment the 6+ month unemployment rate is close to 1%

The problem is that we have had emergency interest rates for 10 years, even when the economy was recovering. This has led to people gorging on cheap money and, even worse, becoming dependent on it... with the result that any small rise in rates is seen as a potential economic disaster.

Such low interest rates have also screwed savers, created multiple asset bubbles, enabled employers to underpay workers at the bottom (because it's fine, they can just borrow to make up the difference, right?) and broken the link between work and prosperity.

That's the problem.

michaels

tara747 wrote: »

The problem is that we have had emergency interest rates for 10 years, even when the economy was recovering. This has led to people gorging on cheap money and, even worse, becoming dependent on it... with the result that any small rise in rates is seen as a potential economic disaster.

Such low interest rates have also screwed savers, created multiple asset bubbles, enabled employers to underpay workers at the bottom (because it's fine, they can just borrow to make up the difference, right?) and broken the link between work and prosperity.

That's the problem.

I think you may have it the wrong way around - the aging population means everyone wants to save for retirement but there is no where very profitable to invest all this money as companies just can not see a way to make a good return even with money for investment being so cheap. High supply plus low demand = low prices - in this case low interest rates.

Rates will only go up if saving falls and investment rises.

HAMISH_MCTAVISH

tara747 wrote: »

The problem is that we have had emergency interest rates for 10 years,

There is no such thing as 'emergency interest rates'.

Rates are set for the appropriate economic conditions of the time.

Nobody should have any expectation that interest rates 'should' be set at any particular level, and most especially not just because they have been higher in the past.

even when the economy was recovering.

Recovering.... Not recovered.

This has led to people gorging on cheap money

Lending for mortgages remains dramatically lower than it was before the financial crisis. There has been no gorging on mortgage credit.

Non mortgage consumer credit lending remains expensive, on average, with not a lot of difference in average rates being paid now versus pre-crisis.

Such low interest rates have also screwed savers,
created multiple asset bubbles, enabled employers to underpay workers at the bottom (because it's fine, they can just borrow to make up the difference, right?) and broken the link between work and prosperity.

That sounds like little more than a bit of an emotive rant from someone that feels entitled to completely risk free higher interest rates to be honest.

That's the problem.

The days of risk free high returns are over.

If you want materially higher returns than what you'll get in a low interest savings account, they are readily available in equities, bonds, peer to peer lending, etc, but you'll need to take on a whole lot more risk to get them.

That's not really a problem though, more just a necessary rebalancing, particularly as the population ages and the imbalance between workers and pensioners grows.

westernpromise

Frankly we are still running a deficit 10 years after Labour's crash because the public sector is too large and overpaid, and because the handful of people who now pay income tax (60% is paid by the top 10% of earners) don't earn enough that they can be robbed of more to balance the budget any faster.

We are in the position of a submarine that has dived to 1,000 feet and was giving signs of being about to implode. We've started to level off but we have not yet even started to head back towards the surface. It is IMHO premature to talk of a return to historic interest rate levels because the level of indebtedness Labour achieved is unprecedented in all our history and thus it is not possible to say what an appropriate level of borrowing is.

We won't see "normal" rates again until we see "normal" public debt again. That could be decades, but the turd in the swimming pool is the nightmarish prospect of a Khorbiyn government. Khorbiyn's Labour won't say sorry for wrecking the economy because they're not. They wish it had been wrecked more and intend to finish the job by ratcheting borrowing all the way back up again. In that event we could see both staggering levels of public debt and much higher interest rates. After all, who's going to lend money to a government that hates you for having money to lend in the first place, and that supports Brexit so it can expropriate private property and impose capital controls?

One thing I have learned from 40-odd years of paying attention to politics is that you should never underestimate how much harm Labour can do, nor how little the moral bankrupts who vote Labour even care. Labour will find something you didn't realise could be wrecked - manufacturing, mining, the housing market, pensions, banking - and do just that.

Thrugelmir

michaels wrote: »

Rates will only go up if saving falls and investment rises.

Savings rates are at 20 year lows. Companies are flush with cash. Thanks to long term low borrowing rates. QE and other supportive measures have prevented a financial meltdown. In the process they have created a topsy turvy situation. That now needs to be corrected.

phillw

HAMISH_MCTAVISH wrote: »

A common misconception.

The MPC actually has two remits.

1) To maintain price stability

2) To support the economic policies of Her Majesty's Government, including it's objectives for growth and employment.

Specifically.

https://www.bankofengland.co.uk/-/media/boe/files/letter/2017/chancellor-letter-221117-mpc.pdf?la=en&hash=ABD11D3C0257F083D83E371648B4D817025B0EAE

"I hereby reconfirm that the target for monetary policy is an inflation rate of 2 per
cent, measured by the 12-month increase in the Consumer Prices Index (CPI). The
inflation target of 2 per cent is symmetric and applies at all times. This reflects the
primacy of price stability and the forward-looking inflation target in the UK
monetary policy framework. The government's commitment to price stability
remains absolute.

In accordance with the Act, I also confirm that the government's economic policy
objective is to achieve strong, sustainable and balanced growth. Price and financial
stability are essential pre-requisites for strong, sustainable and balanced growth
in all regions and sectors of the economy."

It goes on, but the later pages are just images & you can't copy+paste from them.

Thrugelmir

westernpromise wrote: »

We won't see "normal" rates again until we see "normal" public debt again.

Likely that the BOE will follow the lead set by the Fed. Where QE will naturally be allowed to be whittled away. With a policy of simply allowing maturing debt to roll off the balance sheet. Meaning that the DMO has to refinance the debt by tapping into the international money markets.