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

jjmmww1

TheAble said:

jjmmww1 said:

Sounds like bad new for me rate is due to run out dec 2024 anyway to work out what i could be paying from then? if rates go to 6%?

Just plug it into a mortgage calculator using 6%, remaining balance, remaining term.

Thanks didn't relise it was that simple be looking at over a £300 pound rise then for us next year

Eirambler

Interest rate floodgates set to open now after the Chancellor's comments this morning - an open invitation to raise rates as high as necessary to counter core inflation. Presumably in the hope that they can get the rates up and then down again (at least somewhat) before the next election.

This could be very painful for some people in the short to medium term, but good news for those without mortgages I suppose.

It feels like, whatever happens with the economy, the baby boomers - who have mostly long since paid off their mortgages - always seem to win.

Sarah1Mitty2

Eirambler said:

Interest rate floodgates set to open now after the Chancellor's comments this morning - an open invitation to raise rates as high as necessary to counter core inflation. Presumably in the hope that they can get the rates up and then down again (at least somewhat) before the next election.

This could be very painful for some people in the short to medium term, but good news for those without mortgages I suppose.

It feels like, whatever happens with the economy, the baby boomers - who have mostly long since paid off their mortgages - always seem to win.

He is not in control of what happens, not to the extent they would like you to believe.

lojo1000

Other than the obvious media and political pressure the BoE doesn't really want to have rates at 5.5% since they know there would be very little sense in taking on new debt with rates at those levels. And new debt is needed to grow the economy which is why currently it is going nowhere.

They would rather try and talk the economy (wages) down - "don't ask for a pay rise/ accept you're poorer".

I expect housing will take another leg down over the next few months post this bump in mortgage rates we've seen these last few weeks. That could knock confidence.

The current Govt don't sound like they're about to do a tax giveaway or increase spending significantly.

I expect we'll see a very drawn out, low growth economy over the next few years; possibly extending to decades.

Remember Japan went to zero rates and never got inflation above 2%. Property and stocks declined for years. People just began to accept that's the way it is. (though the Nikkei now is a great performer!)

Strange how the psychology changes.

Newbie_John

I have mixed feelings if their actions help much.. one of the major reason for inflation is the russian war which increased prices of petrol, gas, agricultural products, oil, wheat etc. Same issue happens across Europe.
Prices of petrol and gas are kinds of back to normal, some food products are getting cheaper - milk, butter, some still have a hiccup and are going up - cheese etc (need to make up money) but will also fall down in near future.
Then bunch of random events like dry weather in Spain, birds flu - less food, more expensive food. 
A lot of group payrises - NHS etc. more people have more money.

To tackle the inflation - let's raise the rates, which cause huge jump across people monthly costs of living, causing their personal inflation to jump even higher.. rather than decrease. Yes, some people will struggle more and will swap Heinz for supermarket brand, some will skip holidays etc. 

Theoretically it should help, but it's not helping much - so now we're coming with assumption that raises weren't high enough, what if they try it and find out that didn't work either? IMO they should have just waited.

michaels

Thing is we avoided the expected recession as consumer spending held up more than expected despite the fuel and food hikes but the flip side of the coin is we also avoided the sort of loosening of the labour market (unemployment) needed to avoid cost push inflation (wage/price spiral).

As mentioned above the drivers for this are the expansion of the money supply in the covid period when opportunities to spend leading to involuntary saving and thus pent up demand (psychological) with the money (savings) to support extra spending.

On top of this I wonder if there is also a 'money illusion' aspect, used to low interest rates, perhaps those with cash savings are seeing bumper nominal returns on their savings and thinking they can spend these without running down their capital, forgetting that actually returns are now much lower in real terms. (eg before would get 1k interest on 100k savings with inflation at 1% - spend the interest and your lump sum only falls by 1% in real terms.  Now 5% interest and inflation at 10% - spend the 5k interest keeping the capital 'intact' and actually in real terms your pot has fallen in value by 10%)

lojo1000

There is so much psychology in all of this.

You can model the economy all you like till the cows come home but really what you are trying to predict is the average person's willingness to get into more debt (or repay that debt).

It is a confidence game. That is why as humans we fail to see the bad news ahead. If you're getting a pay rise at work and your house goes up in value and inflation is tame, why wouldn't you get a new car on 5 year finance? Why wouldn't you borrow more because you 'know' (feel) that your house price or pay rise will ensure you are fine.

Whilst this all works very well whilst confidence is there, the debt builds up. Either you pay down the debt (at which point the economy stalls, confidence wanes, etc) or you inflate the debt (confidence falls, economy stalls, etc).

I never bought a house - which I regret with hindsight - as despite being a high earner, I never foresaw central banks cutting rates time and again despite what appeared to me to be a crazy debt burden in the economy.

I used to say to friends, you cannot rely on interest rates always being so low - "I remember when rates went up to 15%" (in the ERM crisis). S*** happens. It happened in 2001, 2007, 2020 but central banks seem to think a demand shock is best solved by burdening society with ever more debt.

Have you ever heard a central banker on cutting rates say; "some day our children will have to pay this excess debt back and forego consumption"?

But the psychology of people is to ignore bad news. I understand that. Why listen to doomsayers - "they're just so negative". While the music plays, party on. When the lights go on, you will see whose had too much to drink.

Sarah1Mitty2

Newbie_John said:

I have mixed feelings if their actions help much.. one of the major reason for inflation is the russian war which increased prices of petrol, gas, agricultural products, oil, wheat etc. Same issue happens across Europe.
Prices of petrol and gas are kinds of back to normal, some food products are getting cheaper - milk, butter, some still have a hiccup and are going up - cheese etc (need to make up money) but will also fall down in near future.
Then bunch of random events like dry weather in Spain, birds flu - less food, more expensive food. 
A lot of group payrises - NHS etc. more people have more money.

To tackle the inflation - let's raise the rates, which cause huge jump across people monthly costs of living, causing their personal inflation to jump even higher.. rather than decrease. Yes, some people will struggle more and will swap Heinz for supermarket brand, some will skip holidays etc. 

Theoretically it should help, but it's not helping much - so now we're coming with assumption that raises weren't high enough, what if they try it and find out that didn't work either? IMO they should have just waited.

They already have waited too long, that is why we are now looking at "higher for longer" I think.

Sarah1Mitty2

lojo1000 said:

Other than the obvious media and political pressure the BoE doesn't really want to have rates at 5.5% since they know there would be very little sense in taking on new debt with rates at those levels. And new debt is needed to grow the economy which is why currently it is going nowhere.

They would rather try and talk the economy (wages) down - "don't ask for a pay rise/ accept you're poorer".

I expect housing will take another leg down over the next few months post this bump in mortgage rates we've seen these last few weeks. That could knock confidence.

The current Govt don't sound like they're about to do a tax giveaway or increase spending significantly.

I expect we'll see a very drawn out, low growth economy over the next few years; possibly extending to decades.

Remember Japan went to zero rates and never got inflation above 2%. Property and stocks declined for years. People just began to accept that's the way it is. (though the Nikkei now is a great performer!)

Strange how the psychology changes.

In the past people still took on debt with those rates (and higher)?

lmitchell

Sarah1Mitty2 said:

lojo1000 said:

Other than the obvious media and political pressure the BoE doesn't really want to have rates at 5.5% since they know there would be very little sense in taking on new debt with rates at those levels. And new debt is needed to grow the economy which is why currently it is going nowhere.

They would rather try and talk the economy (wages) down - "don't ask for a pay rise/ accept you're poorer".

I expect housing will take another leg down over the next few months post this bump in mortgage rates we've seen these last few weeks. That could knock confidence.

The current Govt don't sound like they're about to do a tax giveaway or increase spending significantly.

I expect we'll see a very drawn out, low growth economy over the next few years; possibly extending to decades.

Remember Japan went to zero rates and never got inflation above 2%. Property and stocks declined for years. People just began to accept that's the way it is. (though the Nikkei now is a great performer!)

Strange how the psychology changes.

In the past people still took on debt with those rates (and higher)?

Yes, but with affordability at 2-3x income, not 4.49x or even 5x.

Personally, I think a bank rate in the 3% region should offer the right balance of mitigating inflation, rewarding savers and encouraging responsible borrowing.