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

lojo1000

Hoenir said:

lojo1000 said:

MattMattMattUK said:

horsewithnoname said:

Hoenir said:

horsewithnoname said:

MeteredOut said:

horsewithnoname said:

Hoenir said:

horsewithnoname said:

ian1246 said:

I think the biggest issue for renters is scraping a deposit together. Anything which encourages landlords to sell shrinks the rental market. If the demand for rentals then doesn't also shrink at the same/ faster rate... it will result in rental prices climbing. Unfortunately I suspect a very large share of those renting lack the means to purchase the resulting increased supply of homes for sale... which means they may actually become even more lilely to be trapped if rental prices spike...

Also mortgage companies who reckon you can’t afford a mortgage which is significantly less than your rent is per month even when you have a deposit 🤷🏻‍♂️

Owning a house comes with an additional cost burden. Direct comparison between mortgage and rent outgoing is financially misleading. 

Ok then, how about a friend who wanted to pay a lump off their mortgage which would more than their monthly mortgage payment but was told they didn’t pass the affordability test. 

Also you’ll find that a lot of tenants do maintenance themselves to save their rent being increased. What other costs are there, because I can’t think of any. 

Banks don't take anecdotal instances into account when making blanket policy decisions.

No of course they don’t. But to say someone can’t afford to pay less than they are already paying is a bit bonkers. 

The business news these days is dominated by personal opinion rather than informed explanation. Dumbed down financial journalism. Over simplification of complex topics. 

Oh gosh, maybe you could explain then. Do use words of one syllable 🙄

Business news of yesteryear used to present facts, clearly, then the presenter or writer would usually offer their opinion at the end, often, but not always sharing the opinions of others. Now news in general generally presents opinions and vox pops and if one looks very carefully there will be a few very simplified facts sprinkled into the article. 

It is pretty much the Lie-to-children premise/policy, however it has become so prevalent and so dumbed down, treating everyone as simpletons with double digit IQs and no wider understanding. Now of course there are a lot of people like that, but it would make more sense to educate and inform them so that eventually they are able to draw valid conclusions, rather than just tell them what to think, especially when what they are told to thing is often wrong and usually has an agenda behind it. 

https://en.wikipedia.org/wiki/Lie-to-children

But the Fed and BoE will have you believe they can predict ("we have the best forecasters/models"; literally they employs hundreds of Phds) and therefore have a purpose.

From these predictions / forecasts they steer the economy. BOE does far more than simply meet every so often and tweak the base rate. After all they aren't actually in control of the global financial markets. They only influence. 

"steer the economy"?

It's the equivalent of steering a supertanker from storm to storm with a blindfold on. They have no better idea than anyone what decisions people are going to make, when and how much.

What did they do during Covid? They expanded the money supply at exactly the time when the supply of services (and many goods) was severely restricted.

They don't have the ability to steer.

They deliberate and occasionally/ tinker until the media and Jo public knows something is clearly going wrong and then they act so often responding to the chaos they are responsible for by over-reacting to the last crisis.

What do they do when they see a recession? Cut rates and save inefficient firms which should go out of business to release capital and labour to reduce prices for other firms who are financially stable to re-employ.

LightFlare

I hope it stays as it is

 borrowing still needs to still be cooled

house prices need to be stabilised at a sensible level

its great for returns on my savings

People got so used to artificially low rates for a long period so it stands that adjustment to a more “normal” level will take a while

3-4% is probably where it should be long term

lojo1000

LightFlare said:

I hope it stays as it is

 borrowing still needs to still be cooled

house prices need to be stabilised at a sensible level

its great for returns on my savings

People got so used to artificially low rates for a long period so it stands that adjustment to a more “normal” level will take a while

3-4% is probably where it should be long term

If they keep inflation at 2% and base rate is 3.5% then that is a real base rate of 1.5%. If banks can borrow at 1.5% as a last resort from BoE, they are not going to be giving depositors 1.5% (so the banks are borrowing at very low rates).

So if we go back to real rates of 1.5% and banks are borrowing from depositors at near zero again, the lending / money supply growth will once again expand too fast (cheap loans) vs supply of goods/services (+capital investment).

An economy should only expand the money supply at the rate at which the economy can grow.  Asset owners have no incentive to build (allocate to build/produce) when money supply expands too fast since increasing the supply of investment opportunities acts to reduce asset prices - they are better off just holding investments at ever rising prices (buy pre-existing property).

Under low real rates, if the banks lend too much, the excess money is likely going to create another property boom (asset inflation) and if the govt borrows too much it's likely to create general inflation.


Unless the country is going to find productivity again or expand the labour force then supply is not going to expand anywhere near fast enough to keep up with an expanding money supply. At this stage, without innovation (i.e. a property led pension investment philosophy)  the central banks should not be looking to expand the money supply/cut rates.


The low/negative real rates from 2008-2022 meant banks lent against pre-existing property and not to productive capital investment:

lojo1000

UK rate decision Thursday upcoming.

Markets are 50/50 for a hold / 25bps cut.

Unemployment rate is at historic lows around 4%.

Last time BoE cut rates with unemployment this low was in the 70s. Also did so in Covid.

Inflation more than doubled to over 10% each time.

It then took a return to positive real rates of around 5% (REAL RATES) to return inflation to lower levels by which time unemployment went from sub-4% to over 10%.

What utter BS about a 'need to maintain a balanced economy' will Bailey, et al trot out on Thursday (regardless of whether they cut).

BoE should not be cutting rates. Let the markets price yields, credit and labour.

BarelySentientAI

I expect another hold.

With a lot of unnecessary blather.

Hoenir

I expect this thread title to be changed yet again. 

RelievedSheff

No change this Thursday. Rates will be held again.

lojo1000

What do we know since the BoE last met.....

GDP came in at the strongest reading for 2 years and above forecasts. PMIs are showing economy continues to expand. Labour announced a major housebuilding plan which is mandatory on local councils as opposed to Tory rhetoric of a want to build more houses. No-one knows where the resources are coming from to build all these houses.

Productivity growth is at zero (literally, see my post 18 July above) which means any supply expansion can only come from higher employment. Unemployment remains at historic lows and hence expanding employment can only be achieved by raising wages. Real wages are already rising and any further pressure would only ignite inflation. Inflation is on target.

Mortgage rates continue to fall and house prices are growing and above expectations.

If the BoE cuts today, I think I know where their priorities lie.

BoE should not be cutting rates. Let the markets price yields, credit and labour.

Hoenir

Remember BOE looks at data that forecasts into the future. Changes to interest rates take 18 months to have a meaningfull impact on the real economy.  Also interest rates aren't the only tool in the box at their disposal. 

lojo1000

Hoenir said:

Remember BOE looks at data that forecasts into the future. Changes to interest rates take 18 months to have a meaningfull impact on the real economy.   

2 clear reasons why the BoE should not have control of base rates.