BOE and a recession.

brownbagsFTB

@Cheesy77 Thanks for this insight, it’s really helpful. A lot of people (including myself) are trawling these forums hoping for some insight (and probably reassurance) into how this could go. When people blindly state that rates will only go up, it can cause unnecessary panic and lead to people making knee-jerk decisions like fixing high rates for long terms. I’m not saying that opinion isn’t valid, it could well end up being the case, but it would be useful if people added context to their reasoning. So the less experienced homeowners like myself can make informed decisions 

bomdabass

Personally I think anyone locking in a 5 year fix now is crazy. Inflation will have worked it's way out the system by summer.

Fixed rates will be lower in June than they are now, guaranteed.

Aberdeenangarse

bomdabass said:

Personally I think anyone locking in a 5 year fix now is crazy. Inflation will have worked it's way out the system by summer.

Fixed rates will be lower in June than they are now, guaranteed.

Bearing in mind Interest rate futures for second quarter 2023 are currently 6% I somehow doubt it.

Getting_greyer

Cheesy77 said:

mi-key said:

Cheesy I agree. At the moment it is all a knee jerk reaction to everything going on, and to be honest, they have overdone it trying to fix everything overnight.  Keeping very high interest rates isn't going to help anyone as most people now don't have enough in savings to offset the increases

Yes the whole world has changed since the days of average rates being a lot higher in the 90s and early 00s.

I was reading some interesting articles around the 'neutral interest rate'. If anyone is interested then Google it. Its hard to be sure but is currently believed to be around 1.75-2% in the UK and around 2.5% in the US. This interest rate level is where in theory it should keep everything stable, inflation under control and economy ticking along nicely, employment levels good etc.

Clearly we have a problem with inflation, as the whole world seems to. Hence why we are creeping up above that level, which is called tightening - trying to rein in inflation is the main driver. 

Once inflation falls, and it will fall, there are three options:

1. Keep rates elevated above neutral, I don't see any economic reason why they would do this. Obviously there are curveballs that can't be predicted but why would they stay high if inflation is back toward target level?

2. Reduce to neutral zone gradually. Probably the most plausible in the medium term.

3. Reduce beneath the neutral zone gradually. Possible if there is a nasty recession and they need to stimulate the economy/loosen the policy to get out of the recession and get things growing. However, maybe this risks inflation going up again.

It's really hard to predict obviously, but all the talk of a one way only interest rate policy and really elevated levels for years to come I'm not sure I agree with. Just offering a different perspective, and it's going to he interesting to see how it all unfolds.

Suspect this so called neutral rate be in real terms which would be 2%+cpi.

Anyways, general election soon. Manifesto includes MIRAS type scheme, gov deposit loan scheme for FTB and austerity. Heard it here first.

TonyTeacake

Cheesy77 said:

TonyTeacake said:

Higher interest rates look like they are going to be here for a very long time, I can't really see them coming down for quite few years at least. 

We all should be prepared for some very nasty shocks in the economy over the next couple of years. I wouldn't be surprised if we have a Black Swan event.

Depends what you mean by higher rates. I think we can expect rates to probably be higher than they have been the last decade, but not sustained at 5% plus.

The Fed and BOE are both nervous of overcooking the rate rises. Inflation is forecast to start reducing and so pushing the rates too high is not something they will want to do, despite some of the scaremongering. A few more short term rises but no reason at all to expect them to then stay at that peak level. 

Not so sure about inflation to start reducing, may I ask where you got your information from? If it was from The BOE or The Fed I would take it with a pinch of salt because if you look at all there forecasts they have been way out, let's not forget last year they where saying inflation was transitory.

As long as we have high inflation numbers I can't see interest rates coming down anytime soon. This will cause a lot of pain in the housing market which I seen coming from the beginning of this year. The longer inflation stays high it will be disastrous for the economy. Expect to see house price drop over the next 2-3 years by 20-50% depending on where you live. Fixed rate mortgages are now 6% which has killed the affordability for most FTB.

TonyTeacake

bomdabass said:

Personally I think anyone locking in a 5 year fix now is crazy. Inflation will have worked it's way out the system by summer.

Fixed rates will be lower in June than they are now, guaranteed.

I very much doubt interest rates will be lower in June next year. The energy cap is only for 6 months and we don't know where will be at after this. Also expect food prices to be much higher next year as they will be a shortage of wheat and essential products coming out of Ukraine which will push prices up and this will cause a shortage of many products.

Expect inflation to be high for most of this decade.

Cheesy77

TonyTeacake said:

Cheesy77 said:

TonyTeacake said:

Higher interest rates look like they are going to be here for a very long time, I can't really see them coming down for quite few years at least. 

We all should be prepared for some very nasty shocks in the economy over the next couple of years. I wouldn't be surprised if we have a Black Swan event.

Depends what you mean by higher rates. I think we can expect rates to probably be higher than they have been the last decade, but not sustained at 5% plus.

The Fed and BOE are both nervous of overcooking the rate rises. Inflation is forecast to start reducing and so pushing the rates too high is not something they will want to do, despite some of the scaremongering. A few more short term rises but no reason at all to expect them to then stay at that peak level. 

Not so sure about inflation to start reducing, may I ask where you got your information from? If it was from The BOE or The Fed I would take it with a pinch of salt because if you look at all there forecasts they have been way out, let's not forget last year they where saying inflation was transitory.

As long as we have high inflation numbers I can't see interest rates coming down anytime soon. This will cause a lot of pain in the housing market which I seen coming from the beginning of this year. The longer inflation stays high it will be disastrous for the economy. Expect to see house price drop over the next 2-3 years by 20-50% depending on where you live. Fixed rate mortgages are now 6% which has killed the affordability for most FTB.

Pretty much every forecast I have seen, fed, BOE, various financial firms and reporting have forecast inflation to fall quite significantly in 2023. Where have you got your information from to suggest it will not? 

TonyTeacake

Cheesy77 said:

TonyTeacake said:

Cheesy77 said:

TonyTeacake said:

Higher interest rates look like they are going to be here for a very long time, I can't really see them coming down for quite few years at least. 

We all should be prepared for some very nasty shocks in the economy over the next couple of years. I wouldn't be surprised if we have a Black Swan event.

Depends what you mean by higher rates. I think we can expect rates to probably be higher than they have been the last decade, but not sustained at 5% plus.

The Fed and BOE are both nervous of overcooking the rate rises. Inflation is forecast to start reducing and so pushing the rates too high is not something they will want to do, despite some of the scaremongering. A few more short term rises but no reason at all to expect them to then stay at that peak level. 

Not so sure about inflation to start reducing, may I ask where you got your information from? If it was from The BOE or The Fed I would take it with a pinch of salt because if you look at all there forecasts they have been way out, let's not forget last year they where saying inflation was transitory.

As long as we have high inflation numbers I can't see interest rates coming down anytime soon. This will cause a lot of pain in the housing market which I seen coming from the beginning of this year. The longer inflation stays high it will be disastrous for the economy. Expect to see house price drop over the next 2-3 years by 20-50% depending on where you live. Fixed rate mortgages are now 6% which has killed the affordability for most FTB.

Pretty much every forecast I have seen, fed, BOE, various financial firms and reporting have forecast inflation to fall quite significantly in 2023. Where have you got your information from to suggest it will not? 

I will repeat myself, this is the same BOE and Fed who said last year inflation is transitory (short lived). Look where inflation is now so their forecasts have been way out. Go and read articles or watch Bailey and Powell on YouTube from last year talking about inflation being transitory.

No way is inflation coming down in 2023 with energy prices being sky high. My information comes from me looking at the reality of what is really going on in the real world. You can read my posts on here from 6 months ago talking about inflation going up and I was saying interest rates are also going to rocket upwards. I also predicted house prices will start to come down by the end of the summer, although it's only been small price drops up to now but in the next few months I predict house prices will start to plummet down really fast.

DiseasedBunny

bomdabass said:

Personally I think anyone locking in a 5 year fix now is crazy. Inflation will have worked it's way out the system by summer.

Fixed rates will be lower in June than they are now, guaranteed.

Can I have what it is you are smoking? 

TonyTeacake

DiseasedBunny said:

bomdabass said:

Personally I think anyone locking in a 5 year fix now is crazy. Inflation will have worked it's way out the system by summer.

Fixed rates will be lower in June than they are now, guaranteed.

Can I have what it is you are smoking? 

I think bombdabass is winding us up.