Bank of England MPC meeting November 3rd 2022 - what are your predictions and how are you preparing

mi-key

MattMattMattUK said:

The markets, including mortgages have already priced in the rise and everyonenknows it will be going up over time anyway so they might as well get on with it. The markets are priced for around 5% by early to mid next year and they won't change if the bank slows the rate of increase as itneill get there in the end. 

We will already go into recession and Mortgage lenders have already reacted, that is why the cheapest mortgages are currently at 6% or more and won't be coming down for a few years.

The problem there is people are already stretched and spending is down. More rate rises will kill consumer spending when the reason for high inflation isn't due to that

PK_London

Markets were pricing in an 85% chance of 0.75% rise a few days ago with only 15% suggesting a full 1%. However with Moody's negative rating I think we're looking at 1% more likely than not - especially if Rishi gets in as is likely. I'm more keen to see how much of this makes it into consumer mortgage rates. If the rise has already been priced in then rates should mortgage rates should remain at around the current 6.5%.

tifo

housebuyer143 said:

tifo said:

mi-key said:

At 2.25% interest rate, mortgage rates would normally be 4 - 4.25% There is no reason for them to be 6%.

When the BoE rate was 0.25% my mortgage rate was 4.49% and many SVR rates were around this, so 4% from 2.25%? At 2.25% my SVR rate is soon to be 6.49%.

Not really representative. SVR are renowned to be much higher than fixed rates normally. 

Yes, but not everyone is on fixed rates or can get them. Lots are stuck on SVR and cannot move for a reason.

Aberdeenangarse

PK_London said:

Markets were pricing in an 85% chance of 0.75% rise a few days ago with only 15% suggesting a full 1%. However with Moody's negative rating I think we're looking at 1% more likely than not - especially if Rishi gets in as is likely. I'm more keen to see how much of this makes it into consumer mortgage rates. If the rise has already been priced in then rates should mortgage rates should remain at around the current 6.5%.

Indeed. A 1% increase by the BoE should, in fact, stabilise the fixed rate mortgage market. However, if they increased the base rate by only 0.50% it would send the message to the markets that we’re fiscally irresponsible. This would spike swap rates with the knock on effect for mortgage rates.

PK_London

Aberdeenangarse said:

PK_London said:

Markets were pricing in an 85% chance of 0.75% rise a few days ago with only 15% suggesting a full 1%. However with Moody's negative rating I think we're looking at 1% more likely than not - especially if Rishi gets in as is likely. I'm more keen to see how much of this makes it into consumer mortgage rates. If the rise has already been priced in then rates should mortgage rates should remain at around the current 6.5%.

Indeed. A 1% increase by the BoE should, in fact, stabilise the fixed rate mortgage market. However, if they increased the base rate by only 0.50% it would send the message to the markets that we’re fiscally irresponsible. This would spike swap rates with the knock on effect for mortgage rates.

That's the irony. The lower the BOE rises base rates the higher swap rates thus mortgages will be. In theory, a 1% rise should as you say stabilise the current mortgage rates not increase them. It will be fascinating to see how this pans out. I also thinklenders have priced current mortgage rates artificially high to put off new applications while banks deal with the current backlog. I can imagine they will start providing more competitive deals in November.

It really does seem counter-intuitive to think mortgage rates might actually be lower in a few weeks even though the base rate has risen. With that said it might be better off for some people to hold off fixing now and wait a few weeks for mortgage rates to stabilise and possibly even fall.

fergie_

Agree that hopefully that the markets have already priced in increases, but I don't think rates will fall until interest rates start to be cut (if ever) or markets have stabilised and banks decide to chase market share again.

Its much like when fuel prices go up - they are very slow to come down, especially when the nearby garages are charging the same.

Serve_the_Servants

Rate rises are a bit of a sideshow to be honest. The bigger issue that’s not being widely reported to the masses across BBC or Sky News, is the unwinding of quantitive easing. 

The BOE still plans to do this, though it had been forced to delay. It was all that printing of money that helped spike inflation in the first place - probably the biggest unreported input cost when all is boiled down. It’s obviously also helped to devalue sterling. 

On 1st November the BOE will start selling bonds and the world will be watching (as they are the first to do so) It’s unlikely they will dare to carry large rate increases at the same time, as that really would be very high risk. Hence the timing of them saying there won’t be as much of an increase as the market expects. 

The may as well have waited until 5th November so that we could really view it for what it is - a bonfire sale. Google the implications if you’re interested. There are some articles out there. 

The Washington Post notes ‘Central bankers, though, have been remarkably reticent to discuss the potential dangers of a twin tightening of monetary policy by simultaneously raising borrowing costs and unwinding bond purchases’ 

Meanwhile, all that QE is starting to become even more expensive for the taxpayer in other ways. Bloomberg reports that the treasury has just transferred £11billion to the BOE to cover projected losses in its bond buying programme. The government had already made an £828million advance. 

Due to all of the market chaos, the BOE is in trouble with QE costs. They need to unwind it all, but in doing so it could cause even more chaos. Watch this space. 

Also isn’t it very strange how all of this is not widely reported by popular news outlets - or is it really that strange after all? Doubt the powers that be would want the masses to join the dots between a truly massive QE scheme and the huge pain in the wider economy. It’s the single most unreported issue, which is simultaneously the single biggest cause of damage to our living standards.

Similarly with America. The dollar has lost 90% of its value since the 1970s. That is the main driver of reduced spending power. Again, the fact itself and also the reasons behind it are not widely reported, so the population at large are just not aware. The same fundamentals are driving Sterling down but the main news outlets distract with other causes such as the war in Ukraine, COVID and Brexit. They are small fry compared with QE. 

Scorpio33

tifo said:

Scorpio33 said:

Lots of it depends on political stability as well as the war in Ukraine, which is impossible to predict at the moment though.

The war in Ukraine is an excuse for everything that's going wrong ....

Well the War in Ukraine is pushing up oil prices, which in turn is pushing up transportation costs for all businesses. Ukraine is also a large exporter of grains, which have reduced. Less access to these resources = higher costs = higher prices = higher inflation = higher interest rates.

There is also the roll back of QE as mentioned above which will have a huge impact.

Serve_the_Servants

Funny that the main news outlets just report on the causes the BOE gives them. COVID, Brexit, Ukraine etc. None of them ever question why the BOE omits the main reason in their reports. Obviously it’s because they would never want to publicly admit that it’s
actually them themselves who are the cause of massive inflation (and why it will remain high long after the other factors cease to be an issue) Though I’m sure they’ll find some other excuse/distraction to roll out by then. 

Scorpio33

Serve_the_Servants said:

Funny that the main news outlets just report on the causes the BOE gives them. COVID, Brexit, Ukraine etc. None of them ever question why the BOE omits the main reason in their reports. Obviously it’s because they would never want to publicly admit that it’s
actually them themselves who are the cause of massive inflation (and why it will remain high long after the other factors cease to be an issue) Though I’m sure they’ll find some other excuse/distraction to roll out by then. 

Yes. 

I was at a conference the other week, and there was an expert talking about the economy and what could happen over the next 18 months. It was interesting that the view was that QE didn't impact much on inflation in the past, partly due to the rise of china and the rise of cheaper imports.

Obviously now the pound value has fallen, the Gilt rates are rising, plus Ukraine / COVID / Brexit and political instability means that it is not surprising that interest rates are increasing.

The one thing I would say is that we are not alone in this - inflation is high everywhere (generally).


I still stand by my earlier prediction that it is generally assumed that mortgage rates will peak early 2023, then gradually level off. The current risks seem to be priced into the market.