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

Altior

Strummer22 said:

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. 

You are claiming that the mini budget (never implemented) was inflationary, and that the actual budget (implemented) was not inflationary. After actual inflation is higher than was forecast! 

It's up to you to demonstrate/prove/evidence your claim. That's what I'm challenging you to do. As I stated, I feel it is an absurd claim. 

This is not aimed at you personally, but we seem to live in a parallel world now where palpably obviously incorrect statements are trotted out in passing, as facts. It suits nearly everyone who participates in economic and political discourse to treat Truss and KK like utter fruit loops, and pretend all the problems the economy is facing is due to them! All of the people that supported the horrendous, self harming lockdown policies, leading directly to this turmoil, the lamentable BoE, the treasury, the OBR, and all of the people that support palpably failing socialist tax and spend strategies (many of them tory MPs!). 

FWIW, apparently Truss was keen on continuing with an extremely liberal immigration policy, which I feel personally is another massive policy failure, so I do not agree with everything they espoused. They also did not outline explicitly how they would bring the monumentally excessive level of public borrowing and spending of taxpayer cash into some level of order. In mitigation, they were dealing with the Queen's passing, and the tidal wave demand for immediate action over the domestic energy retail spikes. 

It's not really party political from me as I despise what the Tory party has turned into. I have voted twice in a general election, once for Labour in 1997, and once for Conservatives in 2019. If as looks likely, Labour win the next one, will they be to the right of Tories fiscally, who knows. The rapidity that the establishment was able to spit out people elected on a fiscally right platform (and actually tried to begin to enact it) for ones that MPs selected themselves tells me that we may not see the changes I would like to see for a generation. 

And in an effort to keep it broadly on topic, there is a possibility that the whales/market makers in global financial markets smell blood. If that happens, then it could get very messy. 

lojo1000

lojo1000 said:

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.

And just to follow on from my own post (!)...

As well as asking for pay rises and raising prices, there also comes a point where people reduce their borrowing.

As money gets tight for people we often see people resort to credit cards or personal loans. But that is less likely to happen when rates are higher and confidence is lower.

Further, this source of finance runs out quickly. So as the higher rate regime continues in time we see less borrowing. 

Indeed, those who can, overpay their mortgages and do not extend old personal loans taken at lower rates.

And what then does this do to banks?

Less debt/money created = less lending capacity = capital rationing = higher prices (lending rates). We are of course already seeing this in the mortgage market but I don't believe it's got going yet.

This cycle will feed upon itself, just as it does on the way up (your house price went up £100k not because you put a new kitchen in but because the money supply expanded)

Therefore perhaps the biggest impact is not the higher rates but simply the time we spend at these higher rates on both demand for and the supply of money.

If demand and supply of money is falling, we don't know the net impact on price but both are working in the same direction to reduce the level of money in the economy.

ergo, falling aggregate demand for goods and services and investment savings (property speculation).

If that one behemoth of an asset class, property, starts to be seen as a weight around your neck as opposed to a cash cow - this could change the economy landscape for a generation to come.

lojo1000

lmitchell said:

My personal view for the last 6-12 months has been that 4.25% would mark the end of the tightening cycle. However, the SVB issues and talks of Goldman Sachs anticipating the UK's inflation rate falling below 2% BEFORE the end of the year would suggest that 4% bank rate is already doing the job. As so many of us had said, the energy crisis - which the UK economy wasn't to blame for - resulted in vast imported inflation. Take that out of the equation and things may start to settle again.

I think the US Fed have wanted to tighten as far as they can before something serious breaks and the SVB issues may be enough for them to hit the pause button. If I was a betting man, I'd say it'll stick at 4% at the next meeting.

I'm not picking on this poster but took this from the 1st page of this thread. March, less than 4 months ago, many saw the financial instability at the time as a reason rates would not continue higher, that inflation would fall fast.

But when facing the UK pension/insurance crisis and the US regional bank crisis - the central banks stepped in to save them. In the case of the Fed they now actually lend banks $100 and take sub-$100 as collateral.

They stepped in not with a solution to the problem but with a way to stop the markets falling / keep the plates spinning (as they did in 2001/2008/2020).

At what point does a news editor in the media actually produce even 30 minutes on how the economy works. There's plenty on Youtube - a good piece from Frontline - but nothing mainstream. Did I miss it amongst the coverage of the war or covid or partygate?

Is it the problem of calling fire in a cinema, a lack of understanding or a lack of interest from the public?

At the next BoE presser, I want to see one of our wonderful economics or business journos ask what the BoE is doing to ensure banks are not the cause of the next economic collapse due to lack of capital.

sevenhills

What is a normal bank rate, the neutral rate that is good for the economy?

Is a low rate bad because it encourages credit, is more credit bad? A high rate would be bad for business investment.

Sarah1Mitty2

lojo1000 said:

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.

Not sure I agree, the wage increase demands will stop when the job cuts start - BOE/PTB know this, we HAD the mother of all bubbles, it had to stop at some point - BOE/PTB knew this, but they didn`t want to be seen as the ones stopping it (by raising rates too early - too early in the public mind that is) The cure for the inflation (when it turns up) is to crank rates up hard, to higher than the inflation level - BOE/PTB always knew this, and they won`t be led by media/public opinion now because that has already led to them hiking too late and inflation getting out of control! My advice to ordinary people, especially if they have a lot of mortgage debt, would be to start making lifestyle spending cuts NOW, rather than hope for wage rises or rate cuts down the line so that the party can continue........the party is most definitely over as we return to more normal borrowing rates.

Sarah1Mitty2

lojo1000 said:

lmitchell said:

My personal view for the last 6-12 months has been that 4.25% would mark the end of the tightening cycle. However, the SVB issues and talks of Goldman Sachs anticipating the UK's inflation rate falling below 2% BEFORE the end of the year would suggest that 4% bank rate is already doing the job. As so many of us had said, the energy crisis - which the UK economy wasn't to blame for - resulted in vast imported inflation. Take that out of the equation and things may start to settle again.

I think the US Fed have wanted to tighten as far as they can before something serious breaks and the SVB issues may be enough for them to hit the pause button. If I was a betting man, I'd say it'll stick at 4% at the next meeting.

I'm not picking on this poster but took this from the 1st page of this thread. March, less than 4 months ago, many saw the financial instability at the time as a reason rates would not continue higher, that inflation would fall fast.

But when facing the UK pension/insurance crisis and the US regional bank crisis - the central banks stepped in to save them. In the case of the Fed they now actually lend banks $100 and take sub-$100 as collateral.

They stepped in not with a solution to the problem but with a way to stop the markets falling / keep the plates spinning (as they did in 2001/2008/2020).

At what point does a news editor in the media actually produce even 30 minutes on how the economy works. There's plenty on Youtube - a good piece from Frontline - but nothing mainstream. Did I miss it amongst the coverage of the war or covid or partygate?

Is it the problem of calling fire in a cinema, a lack of understanding or a lack of interest from the public?

At the next BoE presser, I want to see one of our wonderful economics or business journos ask what the BoE is doing to ensure banks are not the cause of the next economic collapse due to lack of capital.

JP Morgan today saying that UK base rate could hit 7%, a day after I said it! LOL.

lojo1000

sevenhills said:

What is a normal bank rate, the neutral rate that is good for the economy?

Is a low rate bad because it encourages credit, is more credit bad? A high rate would be bad for business investment.

Leave the money supply constant and allow price to determine aggregate demand and supply.

(...ducks and takes cover)

Sarah1Mitty2

sevenhills said:

What is a normal bank rate, the neutral rate that is good for the economy?

Is a low rate bad because it encourages credit, is more credit bad? A high rate would be bad for business investment.

They got it right when property cost about 3 or 3.5 times income, that was right for the ordinary person, but bankers are not going to make the big bucks in that scenario are they? The big bucks (for bankers) come when you can persuade ordinary people that they need a lot of debt for their main residence (because houses are really scarce now aren`t they?) and two or three more parcels of debt on top for BTL, because that makes you a smart investor, nearly on a level with the the big boys and smart money? Well not really, but it ticked along for quite a while and I am genuinely gobsmacked that the public fell for this for so long. Credit is fine, if used and given out responsibly, the massive cheap credit experiment we have just lived through? That was bad, very very bad on many levels, not least in the destruction of people`s feeling of a "stake" in society and respect for older people, and a LOT of people are now going to regret getting involved with it.

lojo1000

Sarah1Mitty2 said:

sevenhills said:

What is a normal bank rate, the neutral rate that is good for the economy?

Is a low rate bad because it encourages credit, is more credit bad? A high rate would be bad for business investment.

They got it right when property cost about 3 or 3.5 times income, that was right for the ordinary person, but bankers are not going to make the big bucks in that scenario are they? The big bucks (for bankers) come when you can persuade ordinary people that they need a lot of debt for their main residence (because houses are really scarce now aren`t they?) and two or three more parcels of debt on top for BTL, because that makes you a smart investor, nearly on a level with the the big boys and smart money? Well not really, but it ticked along for quite a while and I am genuinely gobsmacked that the public fell for this for so long. Credit is fine, if used and given out responsibly, the massive cheap credit experiment we have just lived through? That was bad, very very bad on many levels, not least in the destruction of people`s feeling of a "stake" in society and respect for older people, and a LOT of people are now going to regret getting involved with it.

Unfortunately for mortgage holders (and more certainly BTL) they are now in the minority of those eligible to vote in the next general election. Would appreciate stats on this but I think this is correct.

That means the Govt is not incentivised, coming into an election, to help them - for so many reasons.

the marginal voting seats and middle classes are represented more by no-mortgage and retired and young renters.

BTL portfolio owners shot themselves in the foot. When you own 30 properties, you still only get 1 vote at the election. The other 29 votes are now families priced out of buying and they have different priorities. 

Private landlords will learn the hard side of investing in illiquid assets with margin calls.

And no, private landlords, you do not provide a service. The people that built the house provided the service. You merely own the property. If you sell there is no housing disaster. Someone else buys when the price is right - problem solved.

Aberdeenangarse

To those saying interest rates are having a limited effect on the Property market, here’s my anecdotal.

Partner sold her house last September and we are using some of the proceeds to extend mine. When we started the planning process at the beginning of the year, we were told we would be looking towards a year before being able to secure builders for the extension. We now have planning and architects have told us they’ve got several builders who could proceed within 4 to 6 weeks. They told us that many people wishing to extend their homes are postponing due to increased costs, one of the main reasons being due higher interest rates.