Rate predictions 2022, 2023

TonyTeacake

Prism said:

poppy10_2 said:

Expotter said:

On the Telegraph today, Interest rates on track to double over six months:

"Financial markets expect the Bank of England to now take the base rate to 3.5pc, or even 3.75pc, in early 2023. A 0.5 percentage point increase is expected next month."

And the rest. We need interest rates of 6%+ to get this under control

Unlikely to happen as we have too much debt to cope with rates like that. We will just have to live with this bought of inflation until its gone.

That seems to be the argument for most people but you have to consider if inflation becomes hyperinflation everything will collapse. Most central governments believed this inflation was transitory (short-lived) and were too slow to react, now they are realising it isn't and they need to act hawkish with interest rate hikes. You can argue about inflation being caused by the war, but the inflation was high before the war which was mainly down to all the money printing.

Unfortunately, we are heading for a lot of economic pain regardless, but the higher this inflation goes, the more businesses will go bust which will lead to even more job losses.

sevenhills

Nebulous2 said:

There's a calculator on the BBC to work out your own inflation rate. I haven't tried it myself. 

https://www.bbc.co.uk/news/business-62558817

It has my inflation rate as 12.1%, it states that is the CPIH measure. So using the RPI measure it would be likely to be higher.

Albermarle

sevenhills said:

Nebulous2 said:

There's a calculator on the BBC to work out your own inflation rate. I haven't tried it myself. 

https://www.bbc.co.uk/news/business-62558817

It has my inflation rate as 12.1%, it states that is the CPIH measure. So using the RPI measure it would be likely to be higher.

Better start tightening your belt 

ABFG

TonyTeacake said:

Prism said:

poppy10_2 said:

Expotter said:

On the Telegraph today, Interest rates on track to double over six months:

"Financial markets expect the Bank of England to now take the base rate to 3.5pc, or even 3.75pc, in early 2023. A 0.5 percentage point increase is expected next month."

And the rest. We need interest rates of 6%+ to get this under control

Unlikely to happen as we have too much debt to cope with rates like that. We will just have to live with this bought of inflation until its gone.

That seems to be the argument for most people but you have to consider if inflation becomes hyperinflation everything will collapse. Most central governments believed this inflation was transitory (short-lived) and were too slow to react, now they are realising it isn't and they need to act hawkish with interest rate hikes. You can argue about inflation being caused by the war, but the inflation was high before the war which was mainly down to all the money printing.

Unfortunately, we are heading for a lot of economic pain regardless, but the higher this inflation goes, the more businesses will go bust which will lead to even more job losses.

Interest rate rises won’t cause energy prices to fall much. Energy is the main cause of the inflation. It might take the edge off but the only answer is long term building energy capacity (nuclear, wind and solar). Better to hold interest rates and spend the money saved in debt payments on that instead. Solve the actual problem instead of fiddling while Rome burns.

kuratowski

ABFG said:

Interest rate rises won’t cause energy prices to fall much. Energy is the main cause of the inflation. It might take the edge off but the only answer is long term building energy capacity (nuclear, wind and solar). Better to hold interest rates and spend the money saved in debt payments on that instead. Solve the actual problem instead of fiddling while Rome burns.

I don't agree with all of this; yes, the current inflation rate is extraordinarily high due to energy prices, but that does not mean that interest rate rises are not required to get inflation back under control.  The UK currently has a high level of job vacancies.  In conjunction with which, import/export supply-chains look to be permanently damaged.  Taken together, this means the economy is "running hot", and raising interest rates is an appropriate response to curtail inflation.

Investing in infrastructure for the future to increase energy capacity (and similarly to improve economic growth potential) is a fiscal decision, not monetary.

ABFG

kuratowski said:

ABFG said:

Interest rate rises won’t cause energy prices to fall much. Energy is the main cause of the inflation. It might take the edge off but the only answer is long term building energy capacity (nuclear, wind and solar). Better to hold interest rates and spend the money saved in debt payments on that instead. Solve the actual problem instead of fiddling while Rome burns.

I don't agree with all of this; yes, the current inflation rate is extraordinarily high due to energy prices, but that does not mean that interest rate rises are not required to get inflation back under control.  The UK currently has a high level of job vacancies.  In conjunction with which, import/export supply-chains look to be permanently damaged.  Taken together, this means the economy is "running hot", and raising interest rates is an appropriate response to curtail inflation.

Investing in infrastructure for the future to increase energy capacity (and similarly to improve economic growth potential) is a fiscal decision, not monetary.

I’m not sure about this. We’ve all become too conditioned to politicians/economists etc making plausible sounding ‘hand waving’ arguments but that lack real evidence.

6-7% of inflation is down to energy (I don’t have the link anymore, apologies). 2% is normal. The rest can be accounted for by the fact we’re comparing to a year ago when demand was artificially suppressed for obvious reasons.

Inflation will reduce to an extent once the base for comparison moves away from the lockdown period, then further when energy prices stabilise. Interest rates will be higher, so people will assume causation where it doesn’t exist.

I’m not saying what should happen will happen, and it matters not whether it’s called fiscal or monetary policy, they interact. The wrong people will be hit by significant interest rate rises, modest ones may help a bit, but it’s not the big answer we need. 

sevenhills

ABFG said:

6-7% of inflation is down to energy (I don’t have the link anymore, apologies). 2% is normal. The rest can be accounted for by the fact we’re comparing to a year ago when demand was artificially suppressed for obvious reasons.

Yes I believe the BoE did say that 80% of inflation was down to external factors.
But they also said inflation will top 13%
If you then think about what inflation would be without the interest rates rises that we have already had.
If you then don't trust the BoE and you prefer to use RPI inflation, that is already 13.4%
Our interest rates are still low, we have increased them less than the USA 

masonic

ABFG said:

kuratowski said:

ABFG said:

Interest rate rises won’t cause energy prices to fall much. Energy is the main cause of the inflation. It might take the edge off but the only answer is long term building energy capacity (nuclear, wind and solar). Better to hold interest rates and spend the money saved in debt payments on that instead. Solve the actual problem instead of fiddling while Rome burns.

I don't agree with all of this; yes, the current inflation rate is extraordinarily high due to energy prices, but that does not mean that interest rate rises are not required to get inflation back under control.  The UK currently has a high level of job vacancies.  In conjunction with which, import/export supply-chains look to be permanently damaged.  Taken together, this means the economy is "running hot", and raising interest rates is an appropriate response to curtail inflation.

Investing in infrastructure for the future to increase energy capacity (and similarly to improve economic growth potential) is a fiscal decision, not monetary.

I’m not sure about this. We’ve all become too conditioned to politicians/economists etc making plausible sounding ‘hand waving’ arguments but that lack real evidence.

6-7% of inflation is down to energy (I don’t have the link anymore, apologies). 2% is normal. The rest can be accounted for by the fact we’re comparing to a year ago when demand was artificially suppressed for obvious reasons.

Inflation will reduce to an extent once the base for comparison moves away from the lockdown period, then further when energy prices stabilise. Interest rates will be higher, so people will assume causation where it doesn’t exist.

I’m not saying what should happen will happen, and it matters not whether it’s called fiscal or monetary policy, they interact. The wrong people will be hit by significant interest rate rises, modest ones may help a bit, but it’s not the big answer we need. 

What they appear to be trying to do is head off a wage-price spiral. At the moment there is a labour shortage, which means employees are in demand and have a lot of bargaining power. If employers are having to pay more and more to secure employees, and in turn increase their prices as a result of these increased costs, then this is going to create a feedback loop. Rather than solving this issue by lowering barriers to employers bringing in migrant labour, the preference seems to be to tip the UK into recession to increase unemployment and reduce employee bargaining power. Add to that the additional trade barriers that have been erected recently, and there is also a need to put the finances of the population under pressure to reduce demand for other items that are going up in price, like food. You are correct that some will be hit very hard by these measures, some will be priced out of existence. On the other hand, the UK has been slipping further and further into trade deficit, with the most recent figures being referred to as "record breaking". This is not a good thing for the currency, so perhaps the rate rises will help to slow the pound's devaluation, at least temporarily.

Desk

Anyone reconsidering their predictions following Citigroup's prediction that inflation will reach an eye-watering 18.6 per cent by January 2023....?

https://www.ft.com/content/778e65e1-6ec5-4fd7-98d5-9d701eb29567

I'd now be more inclined to predict a base rate of 3 per cent by the end of this year, and a high of 6.5 per cent next year.

Desk

Albermarle

6-7% of inflation is down to energy (I don’t have the link anymore, apologies). 2% is normal. The rest can be accounted for by the fact we’re comparing to a year ago when demand was artificially suppressed for obvious reasons.

Even before this recent energy price spiral, and only partly related to increased demand, many raw material prices had gone up very significantly due to supply chain problems, post pandemic. Such as steel, concrete, bricks, plastics, timber, microchips etc . Sometimes as much as 100% price rises, and this must be still feeding through the system as well, even if some of the shortages have eased recently.