Following today's announcements, grab a deal now or wait until November?

Albermarle

Deleted_User said:

Albermarle said:

Projections for peak Bof E rate vary between 3.25% and 5.25%. so might as well use a middle figure of around 4%.
As Neds, says if outlook for inflation remains on the high side, these higher rates may persist. On the other hand the cost of living crisis, higher interest rates, general post Xmas doom and gloom and a shrinking economy, might mean they go into reverse quite quickly.

Seems a reasonable guesstimate but with huge uncertainty on both sides.

Scrapping the energy package (should) be expected to cause inflation to jump significantly and I don't think that's priced into markets yet. Plus generally speaking inflation is "sticky" so interest rate projections on the low end should in my view be treated with scepticism (much as the BOE's endless promise of "we WILL raise UK interest rates in a few months" kept the markets happy for over a decade, despite it becoming more and more obviously untrue).

On the other hand, if the Ukraine war ends suddenly, maybe inflation suddenly drops through the floor and we'll be cursing that we didn't go all-in on bonds @ current yields! Plus, if interest rates do rise much more, the resultant rise in mortgage costs would crush house prices so perhaps that stays the BOE's hand even if inflation does start becoming a touch hyper?

Scary times!

All the above is true, but do not forget the possibility of inflation still being high, but the economy tanking in Q1 2023 and beyond. In this case the Bof E will be reluctant to raise rates, and the negative GDP will do its own job on domestic inflation eventually.

pecunianonolet

There are various factors to consider:

1. Further aggressive interest rises by the BOE cause (usually, assuming some sort of rationale in the market)

- Higher interest payments by the government to repay existing debt, in turn the gov needs to find additional funds to fill that hole. That's either done by tax increases, aggressive austerity policies or offering higher yields for gilts/bonds to borrow required funds in the market or a combination of all. 

- Aggressive BOE interest rate rises bring inflation down, but at the expense of a recession as it slows down demand in areas such as the property and labour market among others. Consumption of goods and services decreases (people try to hold back spending money) so the markets need to offer their goods & services to a lower price to attract people back into the market. 

- Lending is decreasing and that means money creation goes down

- Saving is increasing due to high and attractive rates (minimising real term losses or gain in real terms (Inflation - nominal interest rate = real interest rate)

- Reasonable BOE movements over longer periods have small effects but aggressive movements lead to shock e.g. mortgage rates doubled

2. Moderate BOE rate rises cause

- Slower inflation decrease and a possibility to stabilise inflation on a higher level e.g. 5-6% or above and we see stagflation in the mid to long term

- Spending remains high but at a decreased level as inflation is still well above saving interest so it keeps demand and therefore consumption going. 

- Labour market remains at a healthy level

- Government can offset more debt through inflation

- People, especially vulnerable, are still heavily impacted from high prices.

All in all an equilibrium needs to be found to keep economy going and achieve some sort of price stability. Further factors such as energy crisis, war, erosion of trust in government are all playing into this. The country also requires a strong pound because that keeps import prices low, whereby other countries with high exports benefit from a weak currency. 

I expect further rises but more moderate increases as they might have been forecasted a few weeks ago. 

lohr500

Thanks to everyone who has responded.

On balance, I am going to stick with my original strategy, sit tight until early/mid November and see what happens.
 
We already have cash in the 2.75% Santander eSaver, but I would like to max out our ISA allowances this year if possible for tax purposes. 

NedS

Albermarle said:

Deleted_User said:

Albermarle said:

Projections for peak Bof E rate vary between 3.25% and 5.25%. so might as well use a middle figure of around 4%.
As Neds, says if outlook for inflation remains on the high side, these higher rates may persist. On the other hand the cost of living crisis, higher interest rates, general post Xmas doom and gloom and a shrinking economy, might mean they go into reverse quite quickly.

Seems a reasonable guesstimate but with huge uncertainty on both sides.

Scrapping the energy package (should) be expected to cause inflation to jump significantly and I don't think that's priced into markets yet. Plus generally speaking inflation is "sticky" so interest rate projections on the low end should in my view be treated with scepticism (much as the BOE's endless promise of "we WILL raise UK interest rates in a few months" kept the markets happy for over a decade, despite it becoming more and more obviously untrue).

On the other hand, if the Ukraine war ends suddenly, maybe inflation suddenly drops through the floor and we'll be cursing that we didn't go all-in on bonds @ current yields! Plus, if interest rates do rise much more, the resultant rise in mortgage costs would crush house prices so perhaps that stays the BOE's hand even if inflation does start becoming a touch hyper?

Scary times!

All the above is true, but do not forget the possibility of inflation still being high, but the economy tanking in Q1 2023 and beyond. In this case the Bof E will be reluctant to raise rates, and the negative GDP will do its own job on domestic inflation eventually.

That's my bet. High / sticky inflation, and a recession next year during which the BoE will be between a rock and a hard place. A good old fashioned recession will eventually fix the inflation issue with those who lose their jobs (and maybe homes) paying the price. Anyone over leveraged with debt and/or in an insecure job is unfortunately looking pretty vulnerable.

cricidmuslibale

To answer the question in this thread’s title, I would say taking out a fixed rate deal now is an okay thing to do, providing the interest rate is close to, at or slightly above 5%. However it would probably be better to deposit no more than £1000 or so at current interest rates, thus leaving a considerable amount more than that (if affordable) available for the likely higher interest rates that will be available on fixed rate accounts shortly before or certainly soon after the Bank of England’s meeting on November 3rd.

t1redmonkey

New inflation figures announced today - it's gone back up to double digits, 10.1%.  So the BOE will be taking note of that when they make their decision on raising interest rates in a couple of weeks time...

Albermarle

t1redmonkey said:

New inflation figures announced today - it's gone back up to double digits, 10.1%.  So the BOE will be taking note of that when they make their decision on raising interest rates in a couple of weeks time...

It seems to be a certainty they will raise rates next month anyway, the question is how many more times will they do it in the coming months. The predictions vary from just one more time, to several times.

Oasis1

Still holding on for a 4%+ 1yr ISA...

lohr500

@Oasis1 I would also be happy at that if one appears in November.

The_stingemeister

All I would say is 2 weeks ago I opened a Sainsbury's savings account paying 2%. Now the very same named account (but issue 33 instead of 32) is offering 2.75% with the same terms