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

michaels

What is interesting is when we were at zirp the expectation was that with borrowing increased so much it would only take a relatively small tightening to cause real economic pain - bang goes that theory.

So far the 'medicine' has not worked, perhaps time for a stronger dose?  I guess the fear is we are turning a supertanker, at some point (perhaps when enough people have come off mortgage fixes) the economy may tip into recession/deflation at which point, with the lags to monetary and fiscal policy you can get into a steep, self-reinforcing decline that goes much further than is needed to put the brakes on inflation.

lmitchell

michaels said:

What is interesting is when we were at zirp the expectation was that with borrowing increased so much it would only take a relatively small tightening to cause real economic pain - bang goes that theory.

So far the 'medicine' has not worked, perhaps time for a stronger dose?  I guess the fear is we are turning a supertanker, at some point (perhaps when enough people have come off mortgage fixes) the economy may tip into recession/deflation at which point, with the lags to monetary and fiscal policy you can get into a steep, self-reinforcing decline that goes much further than is needed to put the brakes on inflation.

Bailey himself said only 30% of effects from rate hikes ALREADY made have been felt. That's a giant amount of tightening still to be felt by UK households. The government needs to forget about Boris Johnson for once and start focusing on supply-side reforms to bring down inflation faster.

C225

Interest rates rising try to cool demand so inflation comes down, the problem right now is not enough supply due to various reasons.  So interest rate rises to have the reduction in demand needed, need to be far greater.  BoE in my view should have gone harder faster to stop what is happening now with inflation rooted in and with wages increasing even more it's only going to get worse I fear.

Last week i managed to secure a new fix for my mortgage at 4.24%, looking now the best i could've got is 4.69%

lmitchell

C225 said:

Interest rates rising try to cool demand so inflation comes down, the problem right now is not enough supply due to various reasons.  So interest rate rises to have the reduction in demand needed, need to be far greater.  BoE in my view should have gone harder faster to stop what is happening now with inflation rooted in and with wages increasing even more it's only going to get worse I fear.

Last week i managed to secure a new fix for my mortgage at 4.24%, looking now the best i could've got is 4.69%

Looking at wage rises, this month was always likely to be higher as last June was the start of it all, as Samuel Tombs (impressive economist) said yesterday. As previous months start to fall off the 12-month scale we should see wage rises falling.

TheAble

Aberdeenangarse said:

Two year gilts have now risen above the September highs. This isn’t looking good!

Truss and Kwarteng with their darned mini budget really do have a lot to answer for. 

(Have I got that right..?)

michaels

The Ukraine dam destruction looks like pushing global food commodity prices back up - falling food prices were supposed to be one of the drivers for inflation to fall back....

And it would not surprise me if we saw another gas price spike, all the ingredients are still there.  I will be looking to fix once any deals are launched, shame it seems all the market intervention has killed off competition in that market.

Eirambler

The BoE needs to forget about these 0.25% rate rises, they're not having the necessary effect. A short, sharp rate rise would have far more impact than the softly softly approach up to now, and would actually mean rates would fall again faster than under the current approach.

Quite frankly the BoE have failed at their duty consistently in the last 12 months. You'd have to question how much of that is down to pressure from the government.

Similar to COVID lockdowns, if you deal with the situation strongly and quickly you reduce the overall pain in the long term. If you delay and minimise the initial action to address it, you just drag it out for longer and worsen the overall situation in the end.

lojo1000

Such a sharp increase in money between 2020-2022 started chasing goods which were in limited supply.

Once we'd all bought a new dishwasher, that same money kept circulating the economy but by this time suppliers had caught on and have been taking advantage ever since by raising prices. But now we don't need another dishwasher so the price rises show up in food and services.

It looks as if it is taking longer for the imbalance to be redressed (demand>supply). Money is starting to contract since 2023 but for this to continue, the BoE needs to ensure people don't have the confidence to take on more debt.

If they keep raising, inflation will get back to target but growth will still be weak. There will then be calls for a cut in rates but will they have learned the lesson from the past?

Cutting rates increases demand for assets which are typically financed with debt; most notably property and does little to encourage productivity which is what makes the country richer.

RelievedSheff

lmitchell said:

C225 said:

Interest rates rising try to cool demand so inflation comes down, the problem right now is not enough supply due to various reasons.  So interest rate rises to have the reduction in demand needed, need to be far greater.  BoE in my view should have gone harder faster to stop what is happening now with inflation rooted in and with wages increasing even more it's only going to get worse I fear.

Last week i managed to secure a new fix for my mortgage at 4.24%, looking now the best i could've got is 4.69%

Looking at wage rises, this month was always likely to be higher as last June was the start of it all, as Samuel Tombs (impressive economist) said yesterday. As previous months start to fall off the 12-month scale we should see wage rises falling.

And don't forget that the increase in minimum wage will also be in the April figure which skews the figure somewhat with millions of people receiving a 10% plus pay increase.

lmitchell

RelievedSheff said:

lmitchell said:

C225 said:

Interest rates rising try to cool demand so inflation comes down, the problem right now is not enough supply due to various reasons.  So interest rate rises to have the reduction in demand needed, need to be far greater.  BoE in my view should have gone harder faster to stop what is happening now with inflation rooted in and with wages increasing even more it's only going to get worse I fear.

Last week i managed to secure a new fix for my mortgage at 4.24%, looking now the best i could've got is 4.69%

Looking at wage rises, this month was always likely to be higher as last June was the start of it all, as Samuel Tombs (impressive economist) said yesterday. As previous months start to fall off the 12-month scale we should see wage rises falling.

And don't forget that the increase in minimum wage will also be in the April figure which skews the figure somewhat with millions of people receiving a 10% plus pay increase.

That's a really good point.

I really do fear the MPC are going to over-egg this. I can understand one more strong hike to say 5%, but why not hold it there for 12 months rather than continuing pointless incremental hikes that only make the cutting process longer on the other side? I can see mass deflation in 18 months time, I really can.