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

Sarah1Mitty2

dougson said:

Sarah1Mitty2 said:

Strummer22 said:

Sarah1Mitty2 said:

themanfromportobello said:

Sarah1Mitty2 said:

https://www.bbc.co.uk/news/business-66088718

Will we see resignations?

... from who? BoE? Govt.? Banks? I'd very much doubt it from any!

PM and Chancellor, like the last time we hit this level.

I'm not aware of any clause in UK legislation saying the PM and chancellor must resign if the average 5 year fixed mortgage rate hits 6%.  

Truss and Kwarteng's actions (sweeping inflationary budget without OBR oversight) directly caused that spike. It was also clear that their resignations helped calm the markets. Hard to see how the current PM and chancellor have directly caused rates to be as they are now, or that their resignations would make things better

 So what has changed?

The change is that the previous reason for hitting such interest rate heights was unfunded tax giveaways and an attempt to run public finances in a completely different way to every other established currency, and actively resisting any scrutiny of the plan. 

Consequently the pound tanked and increasing interest rates was the only way to maintain value of sterling.

This time round, we have some independent opinions of our economic strategy, some forecasting, the pound is stabilised and other major economies have done similar things.

In the same way that the 2008 credit crunch wasn't Gordon Brown's fault, this wasn't Sunak's fault. Much like Brown, I expect the voters to punish him at the next general election. 

The idea that decades of money printing (and the crazy printing excesses during Covid) and the eventual results were down to Truss is equally flawed IMO, Brown paved the way for chaos in the same way that Sunak did when he was chancellor.

Sarah1Mitty2

MattMattMattUK said:

Sarah1Mitty2 said:

https://www.bbc.co.uk/news/business-66088718

Will we see resignations?

Of course we will not, blindingly obvious that will not happen. 

That was kind of my point, what Truss and Co. did was no more reckless than all the HTB schemes and other nonsense that has been going on for years, but the idea that "they" caused someone`s mortgage to go up was a handy meme for the media (until it wasn`t) now the media have just switched form "housing crisis" to "mortgage crisis" and hope no one will notice, LOL.

Sarah1Mitty2

To remain on topic I think 5.5% is baked in for August, the latest noises from China are inflationary and supply chain disruptive.

Altior

Strummer22 said:

Sarah1Mitty2 said:

themanfromportobello said:

Sarah1Mitty2 said:

https://www.bbc.co.uk/news/business-66088718

Will we see resignations?

... from who? BoE? Govt.? Banks? I'd very much doubt it from any!

PM and Chancellor, like the last time we hit this level.

I'm not aware of any clause in UK legislation saying the PM and chancellor must resign if the average 5 year fixed mortgage rate hits 6%.  

Truss and Kwarteng's actions (sweeping inflationary budget without OBR oversight) directly caused that spike. It was also clear that their resignations helped calm the markets. Hard to see how the current PM and chancellor have directly caused rates to be as they are now, or that their resignations would make things better

'Inflationary budget'

The KK budget was never enacted.

What is your evidence that it was 'inflationary' ? Which particular policy suggestion was 'inflationary' ?

Your allegations are completely absurd.

So the people who oversaw suggested policies that weren't actually implemented are accountable (in your view), but the people who are overseeing policies that actually have been enacted are not? 

You might agree with it, you might not, but the OBR/treasury were ideologically opposed to the Truss/KK strategy, and were going to actively undermine it. They perhaps handled that obstacle in a naïve way, but it is clear why they took that approach. If we agree with people like you that they should be able to dictate policy, we may as well have no elections and leave the treasury and OBR to screw it up on their own (like the BoE). 

Sarah1Mitty2

Altior said:

Strummer22 said:

Sarah1Mitty2 said:

themanfromportobello said:

Sarah1Mitty2 said:

https://www.bbc.co.uk/news/business-66088718

Will we see resignations?

... from who? BoE? Govt.? Banks? I'd very much doubt it from any!

PM and Chancellor, like the last time we hit this level.

I'm not aware of any clause in UK legislation saying the PM and chancellor must resign if the average 5 year fixed mortgage rate hits 6%.  

Truss and Kwarteng's actions (sweeping inflationary budget without OBR oversight) directly caused that spike. It was also clear that their resignations helped calm the markets. Hard to see how the current PM and chancellor have directly caused rates to be as they are now, or that their resignations would make things better

'Inflationary budget'

The KK budget was never enacted.

What is your evidence that it was 'inflationary' ? Which particular policy suggestion was 'inflationary' ?

Your allegations are completely absurd.

So the people who oversaw suggested policies that weren't actually implemented are accountable (in your view), but the people who are overseeing policies that actually have been enacted are not? 

You might agree with it, you might not, but the OBR/treasury were ideologically opposed to the Truss/KK strategy, and were going to actively undermine it. They perhaps handled that obstacle in a naïve way, but it is clear why they took that approach. If we agree with people like you that they should be able to dictate policy, we may as well have no elections and leave the treasury and OBR to screw it up on their own (like the BoE). 

Exactly, this is the core of the point I was trying to make.

Strummer22

Altior said:

Strummer22 said:

What is your evidence that it was 'inflationary' ? Which particular policy suggestion was 'inflationary' ?

Because the policies therein, particularly tax cuts, would have reduced the tax burden, allowing more disposable income for people to spend and subsequently inflate asset prices. Effectively the policies would have increased the money supply - exactly what posters such as Sarah1Mitty2 have been bemoaning as the cause of the mess we're currently in. 

Or to put the shoe on the other foot.... can you point to any of their policies that would have had a deflationary effect? (Except the EPC, which effectively kicked the inflation can down the road)

I would also add that it was the market reaction to the Truss/Kwarteng budget that eventually meant they saw no alternative but to go (well, Kwarteng was pushed). Whether the market's predictions would have been borne out in reality had the policies actually been enacted is unknown. I certainly don't hold to the neoliberal view that markets are inherently efficient. 

Newbie_John

Remaining on topic, it really depends how the inflation rate will change - if it goes up or stays around 8% I think they can increase the rate. But if it drops below 8%.. I would consider them keeping the rate at 5% - there are no more benefits really of raising the rate even higher, people are already in a panic mode - overpaying their mortgages, preparing for unknown, or saving - 6% savings accounts offer almost 6x the rate that was available 1-2 years ago.
Raising the rate to 6% won't make more people save or cut their spending, there are three groups of people now - those affected - already struggling so raising the rate higher will just cause troubles, those yet not affected - it will get them in the next 1,2 years when their fixed mortgages are due - again no difference if they raise the interest rate now, and the group who won't be affected at all - either no mortgage or living comfortable life. 

Saying all that, I don't know what BoE will do, but I really struggle to see benefits of going any higher, apart from theoretical. 

Altior

Strummer22 said:

Altior said:

Strummer22 said:

What is your evidence that it was 'inflationary' ? Which particular policy suggestion was 'inflationary' ?

Because the policies therein, particularly tax cuts, would have reduced the tax burden, allowing more disposable income for people to spend and subsequently inflate asset prices. Effectively the policies would have increased the money supply - exactly what posters such as Sarah1Mitty2 have been bemoaning as the cause of the mess we're currently in. 

Or to put the shoe on the other foot.... can you point to any of their policies that would have had a deflationary effect? (Except the EPC, which effectively kicked the inflation can down the road)

I would also add that it was the market reaction to the Truss/Kwarteng budget that eventually meant they saw no alternative but to go (well, Kwarteng was pushed). Whether the market's predictions would have been borne out in reality had the policies actually been enacted is unknown. I certainly don't hold to the neoliberal view that markets are inherently efficient. 

Which 'tax cuts' are you alluding to specifically that will increase the money supply? It's not clear that you understand how the money supply is increased. If the gvnt rakes more our money to waste it on handouts and the like, it doesn't change the money supply. In fact gvnt spending is not price sensitive like we are. 

And, since the 'tax cuts' never actually materialised, why has headline inflation and core inflation remained higher than the OBR has forecast?

It should be noted (it is easily forgotten), until the US were surprisingly bearish just after the mini budget (US/Fed being bearish tangibly shocked the money markets), the Labour party agreed to all of the policy suggestions aside from correcting the very top rate of income tax to 40% (a marginal change in the big picture).

It should also be noted that Hunt's pension policy updates are far more beneficial to the super earners (in the name of supposedly bringing consultants back to the NHS from early retirement, the former colleagues of those that have now decided to initiate strike action). I can't wait to see how many consultants it has actually tempted away from their sofas.

You may be able to detect from the tone of my responses that I also feel the only answer is to grow the pie, and not keep increasing the size of the slices being taken from it. The 'adults' being 'back in charge' has not gone very well 6 months later, to put it mildly. There's no getting away from the fact that the Truss KK axis screwed up their opportunity, or that they were never going to be given a chance to succeed however they approached it. 

Strummer22

Altior said:

Strummer22 said:

Altior said:

Strummer22 said:

What is your evidence that it was 'inflationary' ? Which particular policy suggestion was 'inflationary' ?

Because the policies therein, particularly tax cuts, would have reduced the tax burden, allowing more disposable income for people to spend and subsequently inflate asset prices. Effectively the policies would have increased the money supply - exactly what posters such as Sarah1Mitty2 have been bemoaning as the cause of the mess we're currently in. 

Or to put the shoe on the other foot.... can you point to any of their policies that would have had a deflationary effect? (Except the EPC, which effectively kicked the inflation can down the road)

I would also add that it was the market reaction to the Truss/Kwarteng budget that eventually meant they saw no alternative but to go (well, Kwarteng was pushed). Whether the market's predictions would have been borne out in reality had the policies actually been enacted is unknown. I certainly don't hold to the neoliberal view that markets are inherently efficient. 

And, since the 'tax cuts' never actually materialised, why has headline inflation and core inflation remained higher than the OBR has forecast?

Do you have access to the alternative timeline in which they were enacted so you can see how they're getting on over there? 

Besides this, I generally agree that current policies don't seem like they can fix the economy either. The 2% inflation target could be abandoned and the policies geared towards growing our way out of public and private debt instead. I'm no economist, but I figure one effect of this would be devaluation of GBP, in the short to medium term at least. 

lojo1000

Newbie_John said:

Remaining on topic, it really depends how the inflation rate will change - if it goes up or stays around 8% I think they can increase the rate. But if it drops below 8%.. I would consider them keeping the rate at 5% - there are no more benefits really of raising the rate even higher, people are already in a panic mode - overpaying their mortgages, preparing for unknown, or saving - 6% savings accounts offer almost 6x the rate that was available 1-2 years ago.
Raising the rate to 6% won't make more people save or cut their spending, there are three groups of people now - those affected - already struggling so raising the rate higher will just cause troubles, those yet not affected - it will get them in the next 1,2 years when their fixed mortgages are due - again no difference if they raise the interest rate now, and the group who won't be affected at all - either no mortgage or living comfortable life. 

Saying all that, I don't know what BoE will do, but I really struggle to see benefits of going any higher, apart from theoretical. 

My wife works for a small, profitable tuition company. They have only now asked for a pay rise to reflect inflation (despite my strong encouragement for the last 2 years!). If this is even reflective of a minority but material part of the workforce we are still yet to see the impact of further price rises, falling profit margins, layoffs and lack of capital investment - any combination thereof.

To add colour, none of them were afraid of losing their jobs, they just don't like asking for more money. But there comes a point....

I fear the BoE will continue to hike into a slowing economy due to these lag effects. If they were playing this as a game on their tablets, they'd leave rates where they are and sit and wait.  But the external media scrutiny on them and the public perception building that they really are no better than anyone else at predicting inflation will likely force them into more mistakes.

"you're all paid six figures to do one job and you've failed".

If there are material job losses down the line, MPC may not be in their jobs much longer.

People were slow to react to rising prices and they will be slow to react to falling prices/a slowing economy. Policy will remain tight for too long on the way down.

Then the BoE will cut hard. then we get the mother of all bubbles.

As i've said before, I think the BoE should lend at market + penalty rates in unlimited amounts to banks who fail/need bailouts. Take control, change the management at that bank and clawback any bonus awards made.

I think the BoE will now be led by media and public opinion. Unless the next inflation number is a material surprise on the downside they will hike again and continue to do so for as long as inflation persists above target.