BoE raise interest rates by 0.50% to 4%

TonyTeacake

Sarah1Mitty2 said:

IAMIAM said:

Its going to go 4.25 then 4.5 then maybe 4.75 and then back down to around 4ish over the next 12 months IMO

I think it will hit 6%, inflation is now rooted in the system because they are acting too late.

I agree and interest rates could go much higher. 1 year ago a lot of commentators on here where saying interest rates won't go up and inflation will be transitory. Many people who are coming off there fixed rate mortgages cannot afford the new repayments, it looks like all that stress testing by the lenders is not working.

Peoples mortgage payments have gone up 20-40% on refinancing. Last time I checked wages were not up anywhere close to that amount.

With higher interest rates more companies will fold and unemployment will increase, leading to salaries decreasing.

The total number of company insolvencies registered in 2022 was 22,109 — the highest since 2009 and 57 per cent higher than 2021 — according to data issued on Tuesday by the Insolvency Service, a government agency that deals with bankruptcies and companies in liquidation.

matt1983

mi-key said:

london21 said:

Likely more increases over the coming months. 

Not really, Andrew Bailey has said today he thinks we are worst the past and inflation seems to be starting to fall.GDP forecast shows much shallower and shorter recession.

OBR are predicting a 9% drop in house prices over the next two years. Lloyds, who are more conservative are predicting 8% fall by the end of 2023

They nearly always get these predictions wrong 😂 

TonyTeacake

matt1983 said:

mi-key said:

london21 said:

Likely more increases over the coming months. 

Not really, Andrew Bailey has said today he thinks we are worst the past and inflation seems to be starting to fall.GDP forecast shows much shallower and shorter recession.

OBR are predicting a 9% drop in house prices over the next two years. Lloyds, who are more conservative are predicting 8% fall by the end of 2023

They nearly always get these predictions wrong 😂 

The same Bailey who said in December 2021 that inflation was transitory. Look where it is now.

ElwoodBlues

TonyTeacake said:

sevenhills said:

mi-key said

Not really, Andrew Bailey has said today he thinks we are worst the past and inflation seems to be starting to fall.GDP forecast shows much shallower and shorter recession.

OBR are predicting a 9% drop in house prices over the next two years. Lloyds, who are more conservative are predicting 8% fall by the end of 2023

It was only yesterday that the IMF stated that the UK will be the only economy negative for 2023.
With many working suffering a 5% real cut in pay, how are we past the worst.
Then there are all these strikes and workers losing pay.
Of course house prices will fall, there is less money in the economy.

I totally agree the worst is yet to come. Discretionary spending is way down and this is why many businesses are laying off or going bust. Unfortunately there is no soft landing and I'm predicting we are going to have a huge recession. House prices are going to fall massively, way much more  then the OBR or Lloyd's are predicting. I am expecting house prices to drop between 20 to 50% depending on where you live. No way interest rates will be dropping anytime soon and potentially could go much higher over the next 2-3 years as inflation will prove to be very sticky.

50%? You're optimistic as ever Tony! I reckon 20% is about the worst case scenario. People still have to live somewhere, so there'll always be a fairly inelastic demand for housing. Inflation is on it's way down (not that the base rate has anything to do with global energy market anyway). And current mortgage rates are looking far less daunting at 4-5% than the 6%+ of three months ago. Recent relationship between the base rate and mortgage rates goes to show that the two aren't so tightly linked. If the mortgage market is contracting due to slowing property market, lender competition hots up, which is partly why we're seeing better rates now than last autumn.

When you look back at the 2008 crash (the last time in modern history where we had a property market crash), the downward element actually happened very quickly, over about 6 months. Then we had several years of stagnation. I suspect that the worst of the drops this time have already happened, just that the sales data hasn't filtered through to the stats yet. Don't forget that most house price data is based on completion submissions, which seem to be averaging 6+ months from the time the offer was made. I think the market peaked about April-June 2022, and it was already in decline by last August.

Strummer22

TonyTeacake said:

Sarah1Mitty2 said:

IAMIAM said:

Its going to go 4.25 then 4.5 then maybe 4.75 and then back down to around 4ish over the next 12 months IMO

I think it will hit 6%, inflation is now rooted in the system because they are acting too late.

I agree and interest rates could go much higher. 1 year ago a lot of commentators on here where saying interest rates won't go up and inflation will be transitory. Many people who are coming off there fixed rate mortgages cannot afford the new repayments, it looks like all that stress testing by the lenders is not working.

Peoples mortgage payments have gone up 20-40% on refinancing. Last time I checked wages were not up anywhere close to that amount.

With higher interest rates more companies will fold and unemployment will increase, leading to salaries decreasing.

The total number of company insolvencies registered in 2022 was 22,109 — the highest since 2009 and 57 per cent higher than 2021 — according to data issued on Tuesday by the Insolvency Service, a government agency that deals with bankruptcies and companies in liquidation.

I'm curious Tony and Sarah, why do you think all those factors mean that inflation will go even higher?

1. Commenters from 1 year ago saying inflation will be transitory. Well, maybe they would have been correct without the energy price shocks caused by Russia's invasion of Ukraine. With that in place, inflation was 'baked in' because of the step changes in energy price that are rooted in the 6-monthly and then 3-monthly energy price caps (EPCs). What I mean is, if your energy bill goes up 30% on 1 April 2022 and then stays that high for the next year, then for the following 12 months, you will always be paying 30% more than you were a year ago, i.e. inflation on energy is 30%. Say for the sake of argument that energy costs then don't change a year later in April 2023. On April 1 2023, inflation on energy prices suddenly drops from 30% to 0%. Now, direct energy costs only make up a small % of total inflation, but you can see how it can distort the figures. Energy prices will only cause ongoing inflation if they keep rising. They might do, but predictions are now that the EPC will fall below the government's EPC cap later this year.

2. People can't afford their mortgage repayments, and those who can have less money for discretionary spending. This is a deflationary factor, not an inflationary one. Less money to spend = less demand = companies have to lower prices to compete. Obviously this is not the case with all sectors, with essential goods and services less affected, but it definitely doesn't cause inflation.

3. Companies fold and unemployment increases, so salaries decrease. Ditto point 2 - this reduces inflation.

So, based on all the above, why would interest rates have to go to 6% or even much higher?

Aberdeenangarse

BoE predictions have been wildly inaccurate and completely useless. They should have acted far more aggressively much earlier to tame it. Thanks to their actions Inflation will stay higher, longer. No doubt inflation will drop quickly in the next few months, however I doubt they’ll be able to reduce it to much less than 4% or 5% in the near to medium term, well over the 2% they’re predicting. This will in turn keep interest rates higher, longer.

TonyTeacake

22,000 firms go bust in 2022. Government energy support for business's will end in April. This will equate to many more firms going bust and mass lay offs.

It looks like many commentators on here don't really understand how the economy works and you can't ignore the above what I have mentioned. Demand for mortgages is dropping which means less people will be looking to buy. I'm sure somebody on here will tell me cash rich investors and landlords will sweep up all of the houses up.

It will only get worse and by the end of the year you will all see that my predictions have been correct.

Strummer22

TonyTeacake said:

22,000 firms go bust in 2022. Government energy support for business's will end in April. This will equate to many more firms going bust and mass lay offs.

It looks like many commentators on here don't really understand how the economy works and you can't ignore the above what I have mentioned. Demand for mortgages is dropping which means less people will be looking to buy. I'm sure somebody on here will tell me cash rich investors and landlords will sweep up all of the houses up.

It will only get worse and by the end of the year you will all see that my predictions have been correct.

Ok but that's the economy and/or housing market getting worse. Why would that mean that inflation and interest rates also go up?

Aberdeenangarse

Bailey was given a severe grilling over his handling of Inflation by the Treasury select committee this morning. Asked about his current predictions to reduce it to under 5% by the end of the year he said this.

‘ The governor of the Bank of England has told MPs that its forecasts for inflation to more than halve this year are at risk from price and wage-setting as unions continue to demand large public sector settlements.’

So, in other words, he hasn’t a clue what’s going to happen! The blokes worse than useless!