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

Altior

That's a whole new topic and I don't want to derail the thread. Suffice to say that furlough alone was cash that the gvnt borrowed from itself and paid directly into bank accounts via the employer. Predominately cash that didn't exist beforehand. Lots of that cash was parked into saving accounts, waiting for restrictions on our every day life to be lifted (and it could be spent).

lojo1000

TerryDuckworth said:

Altior said:

TerryDuckworth said:

Altior said:

TerryDuckworth said:

Altior said:

Sea_Shell said:

But it's only ever a spot check at the time of borrowing.

Nothing to stop someone overstretching their outgoings after the deal's done.   Either through bad luck or design.

 Of course, and they are free to take that risk., and also meet with the consequences if it goes the wrong way for them. 

That is probably why I have seen and heard many stories on TV-Radio lately with people calling in explaining that they won't be able to afford these new rates on their mortgages.

Can't is probably more like don't want to. 

I don't suppose anyone challenged them and started digging into their circumstances. The new world order, it's always somebody else's fault. 

I can't comment on everyone's individual circumstances. But surely if people have less money to spend in the economy it could be very bad for businesses.

 especially after the vast expansion of the money supply, directly to consumers 

What makes you think the vasts amount of the money supply went directly to consumers? If you were furloughed you were only getting 80% of your wages.

I don't think where it went is as important as the money was created and as soon as it was clear that govt was willing to do whatever it takes to get the party moving again, it was freely circulating in the economy; i.e. the velocity of the money was not slowed down by a lack of confidence. 

So it moved very quickly from govt hands to business and consumers and on again.

MattMattMattUK

sevenhills said:

MattMattMattUK said:

Reducing VAT to 5% would cost the exchequer around £140 billion per annum, meaning the national debt would reach 200% of GDP within 16 years.

The idea of tax cuts to improve the current position is economically illiterate, as equally illiterate as the idea that a £16 billion pa tax rise can clear a £2.6 trillion debt when the deficit is running at over £230 billion pa.

Who is suggesting tax cuts "to improve the current position"?

You were suggesting cuts to income tax, those would be damaging by being both inflationary and by increasing the deficit.

sevenhills said:

An increase in VAT to help pay down government debt would have the same effect as increasing interest rates, but it would affect more people than just mortgage holders that are not on a fixed deal.

Increasing VAT would squeeze people's spending, I am sure you could adjust the numbers to make them work?

The problem is the current deficit is so structurally large that tinkering at the edges will not eliminate it, yet alone return the country to surplus. VAT needs to rise to 25%, without behavioural changes that would raise around £80 billion, but taking those changes into account it would probably only raise £70 billion. On top of that combining IC and NI together would raise £9-12 billion in additional revenue. Raising the base combined rate to 35%, the higher combined rate to 45% and the additional rate to 49% which would raise £24 billion. Reducing the personal allowance to £5,000 which is still higher than most EU countries would generate an additional £80 billion. Adding a withholding tax on dividend of 8.75% would raise £18-26 billion.

Those combined tax rises would raise £200-212 billion, with some other minor tinkering and a bit of economic growth that would eliminate the deficit entirely. Changes to the way corporation tax is structured to make it similar to how it works in Germany or the USA would likely be revenue neutral, but would make reinvesting back into business a much better proposition, the poor structure of our corporation tax is one of the reasons for our low levels of investment in and by business. 

sevenhills

Altior said:

That's a whole new topic and I don't want to derail the thread. Suffice to say that furlough alone was cash that the gvnt borrowed from itself and paid directly into bank accounts via the employer. Predominately cash that didn't exist beforehand. Lots of that cash was parked into saving accounts, waiting for restrictions on our every day life to be lifted (and it could be spent).

The Government wants people to think that wage rises cause inflation, most people are falling for it. The media is a very strong influence.

strawb_shortcake

It's been interesting talking to colleagues about this.

Colleague 1 - mid to late 50's late divorcee, had to take a long term mortgage to retirement age. About to come off a fixed rate mortgage of 2%, looking at 6% come October as they hadn't realised they could lock in a deal early. Electric also cqme off a fix so energy bill has doubled. Food bill has also increased significantly, despite this they will be able to manage, but not without a small change to current lifestyle - already lives quite cheaply.

Colleague 2 part of young couple, mortgage rate is under 2% also expires end of the year. They think low interest rates are normal and likely fall by the end of the year. They've bought a fitted kitchen on credit, had a fancy garden office on credit, have alluded to further debt. Their heads are seemingly buried in the sand, as they booked a £2k holiday on impulse and on the credit card. Their mortgage was taken out over 40 years, so limited to extend the term. Despite them both earning fully throughout covid they still took the mortgage holiday. 

TerryDuckworth

Very interesting to read this Anna.

It just goes to show you that some people will be able to ride this out and on the other side there will be many others who won't be able to ride this out.

BikingBud

annabanana82 said:

It's been interesting talking to colleagues about this.

Colleague 1 - mid to late 50's late divorcee, had to take a long term mortgage to retirement age. About to come off a fixed rate mortgage of 2%, looking at 6% come October as they hadn't realised they could lock in a deal early. Electric also cqme off a fix so energy bill has doubled. Food bill has also increased significantly, despite this they will be able to manage, but not without a small change to current lifestyle - already lives quite cheaply.

Colleague 2 part of young couple, mortgage rate is under 2% also expires end of the year. They think low interest rates are normal and likely fall by the end of the year. They've bought a fitted kitchen on credit, had a fancy garden office on credit, have alluded to further debt. Their heads are seemingly buried in the sand, as they booked a £2k holiday on impulse and on the credit card. Their mortgage was taken out over 40 years, so limited to extend the term. Despite them both earning fully throughout covid they still took the mortgage holiday. 

40 year mortgage surely means house not affordable!

But their further behaviour is symptomatic of the wider UK issues, we, form the Government down are credit junkies.

It's easy money! 

House prices always go up, so we'll always have equity...........won't we?

Debt will always inflate away............won't it?

You're stupid not to!!

TerryDuckworth

BikingBud said:

annabanana82 said:

It's been interesting talking to colleagues about this.

Colleague 1 - mid to late 50's late divorcee, had to take a long term mortgage to retirement age. About to come off a fixed rate mortgage of 2%, looking at 6% come October as they hadn't realised they could lock in a deal early. Electric also cqme off a fix so energy bill has doubled. Food bill has also increased significantly, despite this they will be able to manage, but not without a small change to current lifestyle - already lives quite cheaply.

Colleague 2 part of young couple, mortgage rate is under 2% also expires end of the year. They think low interest rates are normal and likely fall by the end of the year. They've bought a fitted kitchen on credit, had a fancy garden office on credit, have alluded to further debt. Their heads are seemingly buried in the sand, as they booked a £2k holiday on impulse and on the credit card. Their mortgage was taken out over 40 years, so limited to extend the term. Despite them both earning fully throughout covid they still took the mortgage holiday. 

40 year mortgage surely means house not affordable!

But their further behaviour is symptomatic of the wider UK issues, we, form the Government down are credit junkies.

It's easy money! 

House prices always go up, so we'll always have equity...........won't we?

Debt will always inflate away............won't it?

You're stupid not to!!

I think you are onto something here BikingBud.

I have just been playing around with some figures on a mortgage calculator and comparing the rates that we had over 2 years ago at around 2.5% interest rate on a 300k mortgage over 25 years with a 10% deposit. I have also entered the same mortgage on a 6% interest rate over 40 years.

As you can see the monthly payments on a 40 year mortgage are £274 more. But what is really scary is the total payment over the full term of the mortgage. Over 25 years it is £363,379 and over 40 years it is £713,379 which is nearly double. So a £300,000 property now would cost you twice as much when you factor in all of the extra interest you would have to pay.

             

Myrrdinthemage

Newbie_John said:

If I have less disposable income I will buy less items like coke, nice meat cuts, takeaways etc. Those companies would sell less and would have to stop increasing the price and maybe even lower them - effectively lowering inflation.

Except of course, if they are selling less, they will probably put up prices. Several things that would lower inflation quicker would be rejoining the single market or stopping profiteering (neither on the cards) 

Myrrdinthemage

poppy10_2 said:

Myrrdinthemage said:

inflation is supply side, not demand side (and therefore the solution should be to lower rates to cause investment 

People keep trotting out that line, but it's simply not borne out by the facts. Core inflation (stripping out energy and food) is the highest it has been for over 30 years, led by massive rises in recreation and leisure, hospitality and discretionary spending.

The data shows that retail sales remain high. Car sales on finance remain high. House prices remain high. Pubs and restaurants are packed. Builders and tradespeople are booked up months in advance as everyone gets home improvements and extensions done. There is massive demand out there. It needs to be dampened down for inflation to call 

You see, I don't see this for the majority of people (I'm also not sure why core inflation strips out energy and food, because energy and food are both core things to people (And the economy is a human construct, not a thing that happens which we have no bloody control over, so can be changed if there is sufficient will, but that's by the by) - we may have some people who are still spending, but lots aren't. 

What the government should have been doing was, and still is, a massive programme of actual economic investment in reducing energy costs (so insulation) and propping up farming (food inflation, btw is caused by Brexit in two ways and is going to get a lot worse - we import our food (so Brexit has a direct cost) and have thrown our farmers under a bus (directly by Brexit cutting off markets for food we don't eat but do produce in the UK, and indirectly by not properly supporting them - but then the economic geniuses who support Brexit think that we can treat food in the same way as any other goods. We need proper planning to tackle our energy and food security problems, both of which would help inflation come down. They could, also, take action against profiteering, but won't do that either. . .  Either way, continuing to put up interest rates isn't going to bring down inflation soon.