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

Serve_the_Servants

Scorpio33 said:

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.

Interesting, seemingly confirmation of what I had understood to be the case. That the effects of QE build over a number of years, essentially a bubble effect which builds and builds - then feeds into higher prices/devaluation. Equally, it will take years to unwind. Melvyn King has estimated 10 years, but I think that is conservative. I’d hazard a guess at 20-25 years with the other headwinds we’re facing. 

Serve_the_Servants

Mervyn King even. Autocorrect!

Serve_the_Servants

The escalation is clear. The BOE printed more money in the first year of Covid alone, than it did in the entire decade leading up to it. 

MattMattMattUK

mi-key said:

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

More rate rises will not have that effect because they are already priced in for mortgages which is where it happens, mortgages will be renewed at 6% ish regardless. On top of that not rasing the base rate would make things worse, Sterling would fall which would make inflation even worse, markets would further lose confidence in the UK so government borrowing would get even more costly. 

As much as rates going up for a few years is not great, the consequences of not raising them would be worse.

PK_London

Interesting Reuters article saying 75bp rise is a given and there's a possibility of a full 100bp. 

"The Bank is due to begin quantitative tightening (QT) on Nov. 1, selling some of its 838 billion pounds stock of British government bonds acquired over more than a decade of crisis-fighting, from the global financial crisis to the coronavirus pandemic and its aftermath"

It should stabilise the current mortgage rates but it might do the opposite if BOE fail to sell given those bonds given the relatively low UK base rate and strong USD.

Now that the budget has been delayed to 17th November I just don't think the markets will be biting until they see what's in the red book. 

Serve_the_Servants

PK_London said:

It should stabilise the current mortgage rates but it might do the opposite if BOE fail to sell given those bonds given the relatively low UK base rate and strong USD.

Now that the budget has been delayed to 17th November I just don't think the markets will be biting until they see what's in the red book. 

There is no way it’s going to stabilise mortgage rates. Quite the opposite. The bond market is heading for a storm. The EU are this week looking at how they will start to unwind their €5 TRILLION of bonds. Meanwhile the US is also keen to start offloading their $8.8 TRILLION of bonds. Carnage doesn’t even cover it. Floating these back into the market is going to tank bond prices and spike mortgage rates. If they also continue to raise central bank interest rates at the same time, it will be even worse. This is yet more uncharted territory and the sums are staggering. The market will react accordingly. 

bomdabass

Serve_the_Servants said:

PK_London said:

It should stabilise the current mortgage rates but it might do the opposite if BOE fail to sell given those bonds given the relatively low UK base rate and strong USD.

Now that the budget has been delayed to 17th November I just don't think the markets will be biting until they see what's in the red book. 

There is no way it’s going to stabilise mortgage rates. Quite the opposite. The bond market is heading for a storm. The EU are this week looking at how they will start to unwind their €5 TRILLION of bonds. Meanwhile the US is also keen to start offloading their $8.8 TRILLION of bonds. Carnage doesn’t even cover it. Floating these back into the market is going to tank bond prices and spike mortgage rates. If they also continue to raise central bank interest rates at the same time, it will be even worse. This is yet more uncharted territory and the sums are staggering. The market will react accordingly. 

Well I never, it wasn't Liz's fault after all.....

Who'd a thunk it

Serve_the_Servants

bomdabass said:

Serve_the_Servants said:

PK_London said:

It should stabilise the current mortgage rates but it might do the opposite if BOE fail to sell given those bonds given the relatively low UK base rate and strong USD.

Now that the budget has been delayed to 17th November I just don't think the markets will be biting until they see what's in the red book. 

There is no way it’s going to stabilise mortgage rates. Quite the opposite. The bond market is heading for a storm. The EU are this week looking at how they will start to unwind their €5 TRILLION of bonds. Meanwhile the US is also keen to start offloading their $8.8 TRILLION of bonds. Carnage doesn’t even cover it. Floating these back into the market is going to tank bond prices and spike mortgage rates. If they also continue to raise central bank interest rates at the same time, it will be even worse. This is yet more uncharted territory and the sums are staggering. The market will react accordingly. 

Well I never, it wasn't Liz's fault after all.....

Who'd a thunk it

Well the government didn’t exactly help matters! It’s the timing of all of it that is terrible, when you look at everything else that is going on in the wider economy. 

johnbhoy70

Plus they did nothing to lay the ground for it and remarkably communicated even less!!

However, no sensible person lays the blame fully at their doors. This has been coming for years .

PK_London

I've been following the US Fed base rate rises and their mortgage rates for several months which is why I wasn't particularly surprised to see the UK mortgage rates go up as high as they did and when they did.

The average US mortgage rate has just hit 7.12% and that's probably pricing in the Fed's next rate hike next week.

Does this pave the way for where UK rates may be heading?