Are we expecting BOE to remain at 4.75% on 8th February 2025?

naf123

I just wish there was the ability for politicians and BoE to speak openly about how the economy is actually doing well despite rates being at 5.25%. 

If it isn't broken, don't fix it . 

My prediction remains, rates remain unchanged for a while. Maybe immense political pressure would lead to a gesture 0.25% cut. But BoE is meant to be independent and not succumb to external pressures.  

MattMattMattUK

naf123 said:

I just wish there was the ability for politicians and BoE to speak openly about how the economy is actually doing well despite rates being at 5.25%.  

The economy is fluctuating between negative growth and growth so low it barely registers, that is not "doing well".

naf123 said:

If it isn't broken, don't fix it . 

The economy is broken and getting worse, not better.

naf123 said:

My prediction remains, rates remain unchanged for a while. Maybe immense political pressure would lead to a gesture 0.25% cut. But BoE is meant to be independent and not succumb to external pressures.  

The BoE raised interest rates to tackle inflation, however they did it too late and too slowly, meaning that rates had to go higher and stay there for longer. The issue is that nearly all the inflationary pressure was external, it was not because people were borrowing to spend, but because input costs relating to external purchases were dramatically increasing, the BoE attempted to quell domestic demand but domestic demand was not the issue. The main reason in the rise in interest rates was actually to defend the value of Sterling, if UK interest rates were too out of step with US and EU rates then money would flow from the UK to those banking systems, that would devalue Sterling and further increase external input costs, exacerbating inflation. The ECB only ever raised rates to 4% and has recently cut them to 3.75%, whilst there inflation is at 2.5%, in the US the rate is 5.25-5.50% whilst inflation is 3.3% and Canada has cut from 5% to 4.75% with 3.6% inflation.

The US is expected to finish the year in the 4.5-4.75% rage, the ECB 3.0-3.25% Range and Canada 4.0-4.25%. The BoE could afford to and should cautiously begin lowering interest rates, there will likely be at least one more ECB cut this year, possibly three, lowering in August would be a cautious first step and is largely already priced into the markets. That would lower the pressure on homeowners and research shows that it would have little if any inflationary impact due to mortgage fixes, but would reduce the risk of deflation in Q4 and moving into 2025. It does also appear that a significant proportion of any funds freed up by a drop in interest rates would be used by the public to pay down personal debt and into savings, although a small proportion would go on additional spending, usually for low earners. 

The BoE was far too slow to start raising interest rates and did not raise them fast enough when it did start, it should not make the same mistake and be too slow to start lowering them and lower them too little. Note that I am not suggesting that interest rates should fall to sub-1% levels, but somewhere in the 1.75-2.5% range would be good for the economy long term, although that will likely be two years away.

lojo1000

MattMattMattUK said:

naf123 said:

I just wish there was the ability for politicians and BoE to speak openly about how the economy is actually doing well despite rates being at 5.25%.  

The economy is fluctuating between negative growth and growth so low it barely registers, that is not "doing well".

naf123 said:

If it isn't broken, don't fix it . 

The economy is broken and getting worse, not better.

naf123 said:

My prediction remains, rates remain unchanged for a while. Maybe immense political pressure would lead to a gesture 0.25% cut. But BoE is meant to be independent and not succumb to external pressures.  

The BoE raised interest rates to tackle inflation, however they did it too late and too slowly, meaning that rates had to go higher and stay there for longer. The issue is that nearly all the inflationary pressure was external, it was not because people were borrowing to spend, but because input costs relating to external purchases were dramatically increasing, the BoE attempted to quell domestic demand but domestic demand was not the issue. The main reason in the rise in interest rates was actually to defend the value of Sterling, if UK interest rates were too out of step with US and EU rates then money would flow from the UK to those banking systems, that would devalue Sterling and further increase external input costs, exacerbating inflation. The ECB only ever raised rates to 4% and has recently cut them to 3.75%, whilst there inflation is at 2.5%, in the US the rate is 5.25-5.50% whilst inflation is 3.3% and Canada has cut from 5% to 4.75% with 3.6% inflation.

The US is expected to finish the year in the 4.5-4.75% rage, the ECB 3.0-3.25% Range and Canada 4.0-4.25%. The BoE could afford to and should cautiously begin lowering interest rates, there will likely be at least one more ECB cut this year, possibly three, lowering in August would be a cautious first step and is largely already priced into the markets. That would lower the pressure on homeowners and research shows that it would have little if any inflationary impact due to mortgage fixes, but would reduce the risk of deflation in Q4 and moving into 2025. It does also appear that a significant proportion of any funds freed up by a drop in interest rates would be used by the public to pay down personal debt and into savings, although a small proportion would go on additional spending, usually for low earners. 

The BoE was far too slow to start raising interest rates and did not raise them fast enough when it did start, it should not make the same mistake and be too slow to start lowering them and lower them too little. Note that I am not suggesting that interest rates should fall to sub-1% levels, but somewhere in the 1.75-2.5% range would be good for the economy long term, although that will likely be two years away.

I've read and re-read your post trying to understand the logic you're putting forward for a cut and can only find this:

"...would be good for the economy long term..."

I'd be interested to learn how a cut to "somewhere in the 1.75-2.5% range" is good for the economy "long term" with unemployment near 40 year lows and growing real wages.

If you mean, increase GDP then you need not answer in any detail.

For balance, my view is leave rates where they are and allow market prices to adjust any imbalance in supply and demand. [Simple economics for simple people who don't have a vested interest in higher asset prices.]

BikingBud

MattMattMattUK said:

The BoE was far too slow to start raising interest rates and did not raise them fast enough when it did start, it should not make the same mistake and be too slow to start lowering them and lower them too little. Note that I am not suggesting that interest rates should fall to sub-1% levels, but somewhere in the 1.75-2.5% range would be good for the economy long term, although that will likely be two years away.

Is that the economy where we are still burdened by ever increasing debt, personal and national, and our children have no prospect of financial independence due to asset prices and costs, especially houses and rent, being escalated beyond their reach?

The same economy but with a differing perspective where the fortunate few continue to cream off the nice margins they have built into the system without adding any value?

MattMattMattUK

lojo1000 said:

MattMattMattUK said:

naf123 said:

I just wish there was the ability for politicians and BoE to speak openly about how the economy is actually doing well despite rates being at 5.25%.  

The economy is fluctuating between negative growth and growth so low it barely registers, that is not "doing well".

naf123 said:

If it isn't broken, don't fix it . 

The economy is broken and getting worse, not better.

naf123 said:

My prediction remains, rates remain unchanged for a while. Maybe immense political pressure would lead to a gesture 0.25% cut. But BoE is meant to be independent and not succumb to external pressures.  

The BoE raised interest rates to tackle inflation, however they did it too late and too slowly, meaning that rates had to go higher and stay there for longer. The issue is that nearly all the inflationary pressure was external, it was not because people were borrowing to spend, but because input costs relating to external purchases were dramatically increasing, the BoE attempted to quell domestic demand but domestic demand was not the issue. The main reason in the rise in interest rates was actually to defend the value of Sterling, if UK interest rates were too out of step with US and EU rates then money would flow from the UK to those banking systems, that would devalue Sterling and further increase external input costs, exacerbating inflation. The ECB only ever raised rates to 4% and has recently cut them to 3.75%, whilst there inflation is at 2.5%, in the US the rate is 5.25-5.50% whilst inflation is 3.3% and Canada has cut from 5% to 4.75% with 3.6% inflation.

The US is expected to finish the year in the 4.5-4.75% rage, the ECB 3.0-3.25% Range and Canada 4.0-4.25%. The BoE could afford to and should cautiously begin lowering interest rates, there will likely be at least one more ECB cut this year, possibly three, lowering in August would be a cautious first step and is largely already priced into the markets. That would lower the pressure on homeowners and research shows that it would have little if any inflationary impact due to mortgage fixes, but would reduce the risk of deflation in Q4 and moving into 2025. It does also appear that a significant proportion of any funds freed up by a drop in interest rates would be used by the public to pay down personal debt and into savings, although a small proportion would go on additional spending, usually for low earners. 

The BoE was far too slow to start raising interest rates and did not raise them fast enough when it did start, it should not make the same mistake and be too slow to start lowering them and lower them too little. Note that I am not suggesting that interest rates should fall to sub-1% levels, but somewhere in the 1.75-2.5% range would be good for the economy long term, although that will likely be two years away.

I've read and re-read your post trying to understand the logic you're putting forward for a cut and can only find this:

"...would be good for the economy long term..."

I'd be interested to learn how a cut to "somewhere in the 1.75-2.5% range" is good for the economy "long term" with unemployment near 40 year lows and growing real wages.

Unemployment as a headline figure is low, however the participation rate is low, more than accounting for the drop off in unemployment figures. Our participation rate is around 2.2% lower than the G7 average and major European nations. Other advanced economies had their participation rates drop during Covid and rise over the last two years, however ours started falling in 2019 and has continued to fall continually. This falsely lowers the unemployment figure. The growth in "real wages" only exists at the overall level, for most not on minimum wage up to around £80k real wages have fallen and remain flat and PPP continues to fall for 80% of working people. Those at the bottom were somewhat insulated by the inflation linked rises in NLW, state pensioners have received rises ahead of inflation over the last four years and many private pensioners also net beneficiaries of the higher interest rates. 

lojo1000 said:

If you mean, increase GDP then you need not answer in any detail.

GDP is one measure of economic growth, indeed it is the only measure of overall economic growth but it does not relate to economic health. UK economic growth has been poor and we should want GDP to rise, but we should also take account of the sectors that growth occurs in and the spread of the benefits of that growth. Just as GDP is only one part of the equation and cannot be taken as a perfect measure, those who dismiss GDP entirely also show their lack of understanding. 

lojo1000 said:

For balance, my view is leave rates where they are and allow market prices to adjust any imbalance in supply and demand. [Simple economics for simple people who don't have a vested interest in higher asset prices.]

Unfortunately economics are not simple, there are too many factors involved for them to be simple, simple answers to not solve complex problems and simple people are of little help to anyone. Now sure, the market would adjust to some factors and it would find a kind of equilibrium as every system does, however there are too many government interventions distorting the market for it to function properly, the tax system, immigration, benefits, macro-economic policy etc. all distort the market. Your attempt to dismiss anyone who does not agree with you as having a vested interest in high asset prices is a straw man.

MattMattMattUK

BikingBud said:

MattMattMattUK said:

The BoE was far too slow to start raising interest rates and did not raise them fast enough when it did start, it should not make the same mistake and be too slow to start lowering them and lower them too little. Note that I am not suggesting that interest rates should fall to sub-1% levels, but somewhere in the 1.75-2.5% range would be good for the economy long term, although that will likely be two years away.

Is that the economy where we are still burdened by ever increasing debt, personal and national, and our children have no prospect of financial independence due to asset prices and costs, especially houses and rent, being escalated beyond their reach?

Yes, it is the same economy. The ever increasing debt is because every government since 1999 has refused to balance the books and has borrowed (Brown followed the Major plans 1997-1999 then went on a spending spree, as well as hiding hundreds of billions of debt off book). Austerity never happened, we had some cutbacks but we did not cut enough or raise taxes enough so the country has continued to run a deficit for more than two decades, that is why there is ever increasing national debt. People want the nice things, but refuse to pay enough tax to fund them, rather than say in Germany or Scandinavian countries where they accept that everyone has to pay higher taxes, rather than just "someone else". Higher interest rates increase the costs of both mortgages and rents, hardly beneficial for those who cannot currently afford them or are struggling. If we as a nation want rents and house prices (and by extension mortgages) to come down then we need to both reduce immigration and build more dwellings, at an absolute minimum house building needs to match immigration and if we want prices to fall it needs to exceed it. 

BikingBud said:

The same economy but with a differing perspective where the fortunate few continue to cream off the nice margins they have built into the system without adding any value?

I am not really sure what that comment is aimed at, but higher interest rates benefit those with assets and make things worse for those without.

PixelPound

MattMattMattUK said:

The BoE was far too slow to start raising interest rates and did not raise them fast enough when it did start, it should not make the same mistake and be too slow to start lowering them and lower them too little. Note that I am not suggesting that interest rates should fall to sub-1% levels, but somewhere in the 1.75-2.5% range would be good for the economy long term, although that will likely be two years away.

So are you in the "I have a big mortgage and want the rates as low as possible, but suggesting a level just slightly above what I'd prefer to appear reasonable" camp? I can't see it getting anywhere near 2.5% this decade (save for something going wrong in the economy). Since the rates were cut after the 2007 banking crisis most of us have known very low rates, so it's easy to think of them as "normal", which they are not.

The interest rate fell below 5% in 2001, before that it was 1964. Between then and the 2007 crash it went briefly down to 3.5%. There will be cuts (or at least a cut) from the current 5.25% more for an appeasement as the "Cost of Living" factor is ever present at the moment, but they won't want to go much lower. The lower it goes the less flexibility the BoE has to change it to impact the economy, and 5% is the historic benchmark (for 200+ years). 

If it goes below 4% in the next parliament then it would be because of some economic event they've had to react to, otherwise why would it go anywhere near 4% (because you have to re-mortgage at some point isn't a valid answer)

Hoenir

BikingBud said:

Strikes me as continually bizarre and grossly inappropriate to try and control interest rates based upon a scale that doesn't even include house prices. All in the full knowledge that house prices and rental rates significantly outstrip any figures determined by the scale.

Discussing it on a "Mortgage and Endowments" forum rather than a general economy forum indicates where peoples' concerns really lie.

The BOE's two mandates are to control inflation and maintain financial stability. The level of house prices is simply a byproduct. A UK obsession one could say. 

BarelySentientAI

nic_c said:

MattMattMattUK said:

The BoE was far too slow to start raising interest rates and did not raise them fast enough when it did start, it should not make the same mistake and be too slow to start lowering them and lower them too little. Note that I am not suggesting that interest rates should fall to sub-1% levels, but somewhere in the 1.75-2.5% range would be good for the economy long term, although that will likely be two years away.

So are you in the "I have a big mortgage and want the rates as low as possible, but suggesting a level just slightly above what I'd prefer to appear reasonable" camp? I can't see it getting anywhere near 2.5% this decade (save for something going wrong in the economy). Since the rates were cut after the 2007 banking crisis most of us have known very low rates, so it's easy to think of them as "normal", which they are not.

The interest rate fell below 5% in 2001, before that it was 1964. Between then and the 2007 crash it went briefly down to 3.5%. There will be cuts (or at least a cut) from the current 5.25% more for an appeasement as the "Cost of Living" factor is ever present at the moment, but they won't want to go much lower. The lower it goes the less flexibility the BoE has to change it to impact the economy, and 5% is the historic benchmark (for 200+ years). 

If it goes below 4% in the next parliament then it would be because of some economic event they've had to react to, otherwise why would it go anywhere near 4% (because you have to re-mortgage at some point isn't a valid answer)

Why should it be near any particular number?  The economy isn't the same as almost any of the "200+ years" that this magical historic benchmark derives from, which isn't actually calculated from the same interest rate as the modern number refers to, so that's a pointless comparison.  Just as bad a comparison as looking at "average over the last 10 years" or whatever those keen for deep cuts use.

"I'm picking a dataset to average that gives me the number I want" isn't particularly good statistics on either side of the argument.

And "If the interest rate moves, it's because the BoE is reacting to an economic event"?  Erm, yeah?  Isn't that the idea?

MattMattMattUK

nic_c said:

MattMattMattUK said:

The BoE was far too slow to start raising interest rates and did not raise them fast enough when it did start, it should not make the same mistake and be too slow to start lowering them and lower them too little. Note that I am not suggesting that interest rates should fall to sub-1% levels, but somewhere in the 1.75-2.5% range would be good for the economy long term, although that will likely be two years away.

So are you in the "I have a big mortgage and want the rates as low as possible, but suggesting a level just slightly above what I'd prefer to appear reasonable" camp?

No, I am in the "I have rationally looked at the economics of the situation" camp. I do not have a big mortgage. Straw men do not help your position.

nic_c said:
I can't see it getting anywhere near 2.5% this decade (save for something going wrong in the economy). Since the rates were cut after the 2007 banking crisis most of us have known very low rates, so it's easy to think of them as "normal", which they are not.

As AI says, looking at a historical period and saying that justifies your position when current economics are different does not make your position rational. Higher interest rates have a huge negative, they cost the government a lot more to service the national debt, as well as the off book debt and that debt is huge. The additional interest paid will such huge amounts out of public services. If one looks at economic factors having inflation of 1.5-2% and interest rates of 1.75-2.5%, fluctuating as required would be a good position to be in. Government debt will not be too expensive, business can afford to invest, mortgage interest does not suck too much money out of the real economy and it is at the right level that makes investment a better choice than just saving in a bank account, which is good for the economy overall.

nic_c said:

The interest rate fell below 5% in 2001, before that it was 1964. Between then and the 2007 crash it went briefly down to 3.5%. There will be cuts (or at least a cut) from the current 5.25% more for an appeasement as the "Cost of Living" factor is ever present at the moment, but they won't want to go much lower. The lower it goes the less flexibility the BoE has to change it to impact the economy, and 5% is the historic benchmark (for 200+ years). 

Historic benchmarks are largely irrelevant, even more so when you choose to ignore other factors (the huge national debt and high personal debt). The negative drag on the economy of interest rates higher than optimal will cause compound damage to the economy, society and government finances, which is why it needs to fall over the next few years.

nic_c said:

If it goes below 4% in the next parliament then it would be because of some economic event they've had to react to, otherwise why would it go anywhere near 4% (because you have to re-mortgage at some point isn't a valid answer)

Another straw man. It should fall below 4% because to not do so will damage the economy, government and personal finance, it should not be set at a level that benefits only savers.