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

Newbie_John

The entire inflation these days is a bit weird, price of butter went up because the price of margarine went up (more people switch to butter and demand goes up), because the price of oil went up, because of war in Ukraine (largest edible oil provider). As well as costs of gas - which creates about 40% of UK electricity. Raising interest rate to slow down people spending.. not really sure this could work, as soon as the war is over (will it ever happen?) it should all start sorting itself out. 
Electricity price went up and government stepped in to help people, but if someone's bill used to be £60 now it's £120, that's a little of change really. With mortgages jumping from 2% to 7% this makes much bigger increase to household monthly spend - £xxx monthly more. If they continue increasing it, it will push government to create another "help package", increasing country's debt.. 
They'll probably lift it by 0.5%-1% in November but as many already said, mortgages may not instantly follow as they are already 4% over the BoE rate. Let's wait and see.

rc28

PK_London said:

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?

Most US mortgages have a longer term than ours and seem to be priced higher than our shorter term mortgages. So an average 7.12% rate in the US doesn't shouldn't mean 7.12% in the UK

I assume that the calculation for an average US mortgage is based on a longer term than the average UK mortgage.

PK_London

rc28 said:

PK_London said:

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?

Most US mortgages have a longer term than ours and seem to be priced higher than our shorter term mortgages. So an average 7.12% rate in the US doesn't shouldn't mean 7.12% in the UK

I assume that the calculation for an average US mortgage is based on a longer term than the average UK mortgage.

Its true that 30yr mortgages are the norm in the US which is exactly why the Fed wont hesitate to raise rates higher because so few people are effected. Most people will just delay purchases. The problem for the BOE is that they have to keep in step with the FED otherwise Sterling will weaken and since we import so much, inflation will continue to rise. I believe wherever the Fed takes their rates with their America first mindset, the BOE and ECB will have to follow.

US mortgage rates hit 6% on the 15th September and on the 6th October UK mortgage rates followed suit. Its very possible UK mortgage rates will hit the same level in a few weeks.

PK_London

ECB just put their rates up by 75bp - same as last month. I expect the BOE to be the laggard as usual next week

Aberdeenangarse

PK_London said:

ECB just put their rates up by 75bp - same as last month. I expect the BOE to be the laggard as usual next week

I guess if the FED also raise by 75bp the BoE will have to raise by that at least?

Serve_the_Servants

Aberdeenangarse said:

PK_London said:

ECB just put their rates up by 75bp - same as last month. I expect the BOE to be the laggard as usual next week

I guess if the FED also raise by 75bp the BoE will have to raise by that at least?

Watch the BOE do 0.5 and say that they feel inflation has peaked! 

Aberdeenangarse

Serve_the_Servants said:

Aberdeenangarse said:

PK_London said:

ECB just put their rates up by 75bp - same as last month. I expect the BOE to be the laggard as usual next week

I guess if the FED also raise by 75bp the BoE will have to raise by that at least?

Watch the BOE do 0.5 and say that they feel inflation has peaked! 

I thought they tried that last month and it didn’t go down very well with the markets!

Serve_the_Servants

Aberdeenangarse said:

Serve_the_Servants said:

Aberdeenangarse said:

PK_London said:

ECB just put their rates up by 75bp - same as last month. I expect the BOE to be the laggard as usual next week

I guess if the FED also raise by 75bp the BoE will have to raise by that at least?

Watch the BOE do 0.5 and say that they feel inflation has peaked! 

I thought they tried that last month and it didn’t go down very well with the markets!

I’m sure they will have no issue spinning a narrative that they know isn’t palatable, as long as it allows them to do as they wish. Even if it ends up dipping slightly over the next few months (which I personally think is unlikely), inflation over 4% isn’t going away for quite a few years. I actually think it’s quite possible that with weak rate rises, we will see 12%-15% by Q2 next year. I’m not wishing for it, I just think it’s likely without much stronger action. 

Serve_the_Servants

The harsh truth is that if they are going to be flogging bonds from November, they really are restricted in what they can do with rate rises. They can no longer do 0.75-1.00 increments as far as I can see. Which is what we need. The bank rate should already be near 5% with inflation running at circa 10%. Because the country is used to cheap money and now they are worried about the impact of unwinding it all, it means we will get to 5-7% much more slowly. 

Cheesy77

Serve_the_Servants said:

The harsh truth is that if they are going to be flogging bonds from November, they really are restricted in what they can do with rate rises. They can no longer do 0.75-1.00 increments as far as I can see. Which is what we need. The bank rate should already be near 5% with inflation running at circa 10%. Because the country is used to cheap money and now they are worried about the impact of unwinding it all, it means we will get to 5-7% much more slowly. 

Interested to know your reasoning behind this? I think they are doing just as they need to by incremental steps. They cannot be sure at what level inflation will start to reduce, and it takes time to see the impact of each rise. Overshoot too quickly and it'll lead to an even bigger problem