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

Hoenir

lojo1000 said:

Hoenir said:

What is happening is CBs have been on a rate cutting cycle for a year now and all yields have done since is go up.

That is either due to a strong outlook for growth or inflation. 

The chart suggests that normality is returning. The abnormality was the QE era. 

I think CBs will be forced to go back to QE within in a few years when they realise cutting rates no longer stimulates the economy.

Neither of the BOE's mandates are to stimulate the economy though. That's the role of Central Government and the policies they adopt. 

ReadySteadyPop

Hoenir said:

lojo1000 said:

Hoenir said:

What is happening is CBs have been on a rate cutting cycle for a year now and all yields have done since is go up.

That is either due to a strong outlook for growth or inflation. 

The chart suggests that normality is returning. The abnormality was the QE era. 

I think CBs will be forced to go back to QE within in a few years when they realise cutting rates no longer stimulates the economy.

Neither of the BOE's mandates are to stimulate the economy though. That's the role of Central Government and the policies they adopt. 

https://www.bbc.co.uk/news/articles/c78631e4gygo

lojo1000

Hoenir said:

lojo1000 said:

Hoenir said:

What is happening is CBs have been on a rate cutting cycle for a year now and all yields have done since is go up.

That is either due to a strong outlook for growth or inflation. 

The chart suggests that normality is returning. The abnormality was the QE era. 

I think CBs will be forced to go back to QE within in a few years when they realise cutting rates no longer stimulates the economy.

Neither of the BOE's mandates are to stimulate the economy though. That's the role of Central Government and the policies they adopt. 

But you know it's all connected,  right?

lojo1000

ReadySteadyPop said:

lojo1000 said:

Maka344 said:

lojo1000 said:

Hoenir said:

What is happening is CBs have been on a rate cutting cycle for a year now and all yields have done since is go up.

That is either due to a strong outlook for growth or inflation. 

The chart suggests that normality is returning. The abnormality was the QE era. 

I think CBs will be forced to go back to QE within in a few years when they realise cutting rates no longer stimulates the economy.

Where do you see the base rate in 2027+? 

1. No idea as so much can happen in 2-3 years.
2. I think rates will still be on a downward path by 2027.
3. At some point govts and CBs will cause inflation as it will be the least worse option to them and rates will later need to go up materially. 
4. Don't know when this will be.

Not like they tried to do in 2008, and finally succeeded in doing after Covid, that was co-ordinated across the globe, can`t see that happening again to be honest, things are a lot more uncontrolled now with CB`s working for their own national interests and politics moving away from globalism.

2025 inflation period is transitory (!) as I see it. The longer term trend is lower for inflation.

Across the major economies only US is above 2% growth. With rising yields since November I do not see this increasing without major stimulus. (and even that will backfire longer term as govt debt interest is too high already and cutting base rates is only generating higher yields = contractionary policy).

CBs are not in control of policies to promote productivity, all they have is monetary policy to impact demand or directly to use QE to reduce yields.

Over the last 25 years, markets have been conditioned by CBs to be risk-on when the CBs signal easing is coming. Whilst that worked for the 2008 GFC, in 2022 post Covid, it just lead to traders moving straight into high risk secondary markets..........i.e. investors/traders no longer invest in start up capital (can add to productivity) but go straight into pre-listed equities/pre-built homes to ride the asset inflation upwards (nothing is produced).

The developed markets post QE and ZIRP have learned the best returns come from front-running the CBs. So when they saw inflation coming down and a rate cutting cycle coming in 2024, they were already buying bonds -  now that ship has already sailed. Now, as the CBs are delivering the rate cuts, traders are taking profits and selling bonds = rising yields.

It just goes to show how the CBs are not actually helping the economy (why I say get rid of central control of monetary policy). They just move the deckchairs and make uneducated ppl think they serve a purpose to raise confidence. They do not and cannot raise productivity - which is the ONLY road to economic growth in the LONG TERM.

Hoenir

lojo1000 said:

Hoenir said:

lojo1000 said:

Hoenir said:

What is happening is CBs have been on a rate cutting cycle for a year now and all yields have done since is go up.

That is either due to a strong outlook for growth or inflation. 

The chart suggests that normality is returning. The abnormality was the QE era. 

I think CBs will be forced to go back to QE within in a few years when they realise cutting rates no longer stimulates the economy.

Neither of the BOE's mandates are to stimulate the economy though. That's the role of Central Government and the policies they adopt. 

But you know it's all connected,  right?

Budgets have a far greater impact on the real economy. As the impact is more or less instanteous. Interest rates as a lever to pull have a time lag. A decade of QE could easily take two decades to unwind. No shortage of low interest rate debt yet to be refinanced. 

lojo1000

Hoenir said:

lojo1000 said:

Hoenir said:

lojo1000 said:

Hoenir said:

What is happening is CBs have been on a rate cutting cycle for a year now and all yields have done since is go up.

That is either due to a strong outlook for growth or inflation. 

The chart suggests that normality is returning. The abnormality was the QE era. 

I think CBs will be forced to go back to QE within in a few years when they realise cutting rates no longer stimulates the economy.

Neither of the BOE's mandates are to stimulate the economy though. That's the role of Central Government and the policies they adopt. 

But you know it's all connected,  right?

Budgets have a far greater impact on the real economy. As the impact is more or less instanteous. Interest rates as a lever to pull have a time lag. A decade of QE could easily take two decades to unwind. No shortage of low interest rate debt yet to be refinanced. 

2 decades to unwind strikes me as a very large economic impact.

Both fiscal and monetary have an impact on the economy and the extent depends on the size of the changes made.

However, fiscal just moves existing money around (unless the CB buys debt directly - which is a complete 'no,no'). Its impact on confidence (velocity of money) is most relevant. Monetary policy changes the money supply and impacts on both confidence and monetary demand.

lojo1000

lojo1000 said:

What is happening is CBs have been on a rate cutting cycle for a year now and all yields have done since is go up.

That is either due to a strong outlook for growth or inflation. 

If you think the outlook for growth for the UK economy is strong with productivity growth at zero then that's okay.

But I would like to hear the basis for that belief.

Another 10bps higher and MSM seem to be blaming Reeves? Perhaps the VIs are crying for lower taxes but certainly do not want higher interest rates.

The reason why yields are moving up is because expectations for nominal growth are increasing. That is most likely as expectations for higher inflation is increasing as opposed to real growth.

Why are inflation expectations rising?

Because higher yields without any economic confidence in the future leads to lower investment and spending growth which in turn will likely encourage the ******* at the BoE to cut rates even further and the govt deficit to rise leading to even more chance of an inflationary cycle.

Once Main St understands what may be unfolding, I think confidence will collapse. Unemployment then rises sharply and people are left wondering why they are paying 40% of income on a mortgage which likely will be going higher having paid 5x income for a house which was 20% cheaper pre-Covid.

lojo1000

To add insult to injury, now GBP is falling even as yields are rising - due to lower global investor confidence in UK - and hence raising the chance of further inflation (as UK is a net importer) and exacerbating the UK economic woes.

Oftentimes, higher yields will attract inward investment. But that only occurs if economic prospects are strong (ie bond investors are forecasting higher growth, not higher inflation). 

In the current UK case, higher yields and lower GBP are reflecting the same worry - a bankrupt country which gambled on 1 thing......higher property prices will continue endlessly in some bizarre ponzi scheme and we can all retire by cashing in and selling to future generations who will somehow be expected to do the same thing.

BikingBud

lojo1000 said:

To add insult to injury, now GBP is falling even as yields are rising - due to lower global investor confidence in UK - and hence raising the chance of further inflation (as UK is a net importer) and exacerbating the UK economic woes.

Oftentimes, higher yields will attract inward investment. But that only occurs if economic prospects are strong (ie bond investors are forecasting higher growth, not higher inflation). 

In the current UK case, higher yields and lower GBP are reflecting the same worry - a bankrupt country which gambled on 1 thing......higher property prices will continue endlessly in some bizarre ponzi scheme and we can all retire by cashing in and selling to future generations who will somehow be expected to do the same thing.

Been running away since late 1980s really, yet people still feel the Emperor is remarkably well dressed!

But if we ain't growing the cabbage and carrots then there is no product and there is no profit and the Gambler's Anonymous season ticket holders are driving the economy.

National debt interest only just outside the top 3 of tax spend, how about we flip that with Business and Industry?

Altior

Another 10bps higher and MSM seem to be blaming Reeves? Perhaps the VIs are crying for lower taxes but certainly do not want higher interest rates.

Reeves ratcheted up spending and throttled business growth by hiking their costs. An obvious way business handles increased costs is to put their prices up. Of course, 'political' debate is apparently frowned upon, so best not dig into it much, but the apparently independent obr forecast lower growth, specifically based on Reeves' budget policies.