BOE and a recession.

tony3619

Just been reading about a shrinking economy in August. What does the BOE do to interest rates in a recession? 

danlewi2

Unlikely to reduce them significantly whilst they try to get inflation under control.

tony3619

danlewi2 said:

Unlikely to reduce them significantly whilst they try to get inflation under control.

Could it influence the amount they raise them by? 

propertyhunter

Inflation is their priority and it's still 5 times higher than their target. Plus unemployment figures were at a record low this week, so a reduction in interest rates is very very unlikely in the next 2 years, unless there is a black swan event. With the pound being so weak against the dollar, interest rates are only going to increase so that our currency has/retains value - lots of the inflation we have experienced is due to importing goods priced in dollars (e.g. oil, gas). If the Fed keeps increasing, BoE will need to increase, and right now the BoE is lagging the Fed.  

EnterUserName

I am not an economist by any stretch so these comments are as good as any other you might read on the internet  

From my simple view it seems that the government are trying to release money into the economy (i.e. through cutting taxes), which will surely fuel inflation?

The BoE / MPC are trying to make people baton down the hatches and stop spending, stop asking for pay rises in order to get inflation down.

If this simple view is correct, the MPC may have to continue raising interest rates to counteract the government's 'extra money' going into the system.

So to me, a small recession (including job losses) would help achieve the objective of bringing inflation down (and not letting it get entrenched through salary increases). So I wouldn't think the risk of a recession would alter the interest rate trajectory much, not in the short term anyway.

tony3619

EnterUserName said:

I am not an economist by any stretch so these comments are as good as any other you might read on the internet  

From my simple view it seems that the government are trying to release money into the economy (i.e. through cutting taxes), which will surely fuel inflation?

The BoE / MPC are trying to make people baton down the hatches and stop spending, stop asking for pay rises in order to get inflation down.

If this simple view is correct, the MPC may have to continue raising interest rates to counteract the government's 'extra money' going into the system.

So to me, a small recession (including job losses) would help achieve the objective of bringing inflation down (and not letting it get entrenched through salary increases). So I wouldn't think the risk of a recession would alter the interest rate trajectory much, not in the short term anyway.

Is the market rate prediction still around 5.5% peak?

ACG

If interest rates come down, the value of the pound goes down (unless other countries also lower their rates). That will increase inflation as everything you buy goes up in price.

You basically have the choice of high interest rates or everything else is expensive (food, fuel etc) - although at the minute it seems to just be everything is expensive). 

TonyTeacake

EnterUserName said:

I am not an economist by any stretch so these comments are as good as any other you might read on the internet  

From my simple view it seems that the government are trying to release money into the economy (i.e. through cutting taxes), which will surely fuel inflation?

The BoE / MPC are trying to make people baton down the hatches and stop spending, stop asking for pay rises in order to get inflation down.

If this simple view is correct, the MPC may have to continue raising interest rates to counteract the government's 'extra money' going into the system.

So to me, a small recession (including job losses) would help achieve the objective of bringing inflation down (and not letting it get entrenched through salary increases). So I wouldn't think the risk of a recession would alter the interest rate trajectory much, not in the short term anyway.

I wouldn't bet on a recession bringing down inflation as there is no guarantee of this. I do agree interest rates are only going one way and that is up. With real inflation well over 20% it will take a very long time to get it down to 2% as it is now entrenched in our economy.

Unfortunately, many people are going to be in big trouble with their mortgages as interest rates keep rising, this is also having a big effect on the housing market as in the last 3 months the prices have been dropping rapidly and we will see this show up in the land registry data after Christmas.

EnterUserName

@TonyTeacake I have noticed the number of houses for sale in my town explode recently. I remember looking about 6 months ago, there were a handful on the market (comparable to mine). Now there's scores of them...

Which worries me about my backup plan to sell if the rates go too high next year. I suspect there will be a number of distressed sellers with the choice of low offers or defaulting...

I guess I, like many, will just have to see how it pans out.

EnterUserName

tony3619 said:

Is the market rate prediction still around 5.5% peak?

I'm afraid I have no idea. I'm not sure anyone does, it seems to change daily!

TonyTeacake

EnterUserName said:

@TonyTeacake I have noticed the number of houses for sale in my town explode recently. I remember looking about 6 months ago, there were a handful on the market (comparable to mine). Now there's scores of them...

Which worries me about my backup plan to sell if the rates go too high next year. I suspect there will be a number of distressed sellers with the choice of low offers or defaulting...

I guess I, like many, will just have to see how it pans out.

More houses on the market means the pendulum is now swinging into a buyers market. All the demand during the pandemic was mainly down to low interest rates and cheap money. It's really sad to think all of these booms always end with a bust and many people after suffer through other people's greed.

If you look at my previous posts from over 6 months ago I said inflation will get out of control and interest rates will go much higher and nearly everyone on here was laughing at me. I still think interest rates are going to go much higher.