Central Bank Interest Rates - Real Forecast

Kronosoftime

Hi,

I am new around here so nice to meet you all.

I am wondering what people thinks about the decision of increasing of 0.25% the interest rates from the central Bank vs the real increased Inflation (around 9% now). The Bank of England forecast is to not have it above 2.6% in 2023 and 2024 and reducing it in 2025 as they believe that inflation will go back to the aimed 2% (I do not know if to laugh or despair).

Do you actually think that it will go higher? Maybe not the 70's and 80's level but at least pre-2008 crisis?

Ballard

I’ll start by saying that I’m not an economist and have no insight into what might happen and the below is simply the ramblings of someone with limited understanding. 

The high inflation we’re seeing at the moment is caused by a number of factors but the war is front and centre. It’s causing fuel supply issues as well as raw ingredients (eg grain). Transport costs have risen so the knock on effect on inflation is easy to understand. 

I’m wary of my next sentence as I REALLY don’t want to start off another boring debate but Brexit is harming the UK too. Exports to the EU have become far more difficult. This is making the Pound very weak in the FX markets which is bad news for imports (although good for exports).

Considering all this, using interest rates to bring inflation down isn’t going to do much. It’s not going to suddenly make people switch to save/don’t borrow mode because a lot of people have little choice as it is. Higher interest rates make importing and exporting more expensive. In theory it would strengthen the currency in the forex market but I doubt that it would have much effect because our economy is seen as being very poor at present.

Raising interest rates significantly would cause deep hardships and erode confidence on the world stage. Having interest rates trickle up is probably in the cards in the short to medium term.

if you’ve got to the end and disagree with me, that’s completely fine but please re-read my opening paragraph before replying!

Ballard

On the subject of exchange rates I see that ‘cable’ (GBP/USD) has lost two big figures today. It was around 1.2350 on Friday and was 1.2150 this afternoon. That’s a sizeable change. 

Ballard

Ballard said:

On the subject of exchange rates I see that ‘cable’ (GBP/USD) has lost two big figures today. It was around 1.2350 on Friday and was 1.2150 this afternoon. That’s a sizeable change. 

It turns out the there’s heavy speculation that the Fed will hike US rates by up to 0.75% this week which probably explains Sterling’s weakness against in