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

lojo1000

michaels said:

Given commodity prices have not just stopped increasing but have actually fallen, we could get a situation where in the short term falling goods prices go some way to offsetting rising wages.  However that is only likely to be temporary but might give us 5% by the end of the year before inflation rises again.

I suspect in the medium term interest rates will bite, employment will fall and the economy will overshoot sharply on the way down - just as interest rate increases have proved to be very slow acting, any cuts will have the same long and variable lags.  The govt will then be under pressure to use fiscal policy to prevent a recession being too deep and steep but we are not exactly starting from a point where fiscal expansion makes sense....

The is a simple, effective, fast acting, easily reversible, fairer, beneficial for the deficit -  but politically unacceptable solution: use fiscal policy rather than monetary policy to address the current excess demand.

Agree with use of fiscal policy to bring inflation down which will require a reduction in the national debt which is not easy going into an election.

However, I am beginning to come around to the idea that the 2024 election for the Tories is already lost so they could screw over Labour by not trying to prop up the economy, take a moral high ground of being prudent and then watch as the economy implodes 2025-2030 and then step back in again when the electorate demand another change in govt.

propertyhunter

lojo1000 said:

michaels said:

Given commodity prices have not just stopped increasing but have actually fallen, we could get a situation where in the short term falling goods prices go some way to offsetting rising wages.  However that is only likely to be temporary but might give us 5% by the end of the year before inflation rises again.

I suspect in the medium term interest rates will bite, employment will fall and the economy will overshoot sharply on the way down - just as interest rate increases have proved to be very slow acting, any cuts will have the same long and variable lags.  The govt will then be under pressure to use fiscal policy to prevent a recession being too deep and steep but we are not exactly starting from a point where fiscal expansion makes sense....

The is a simple, effective, fast acting, easily reversible, fairer, beneficial for the deficit -  but politically unacceptable solution: use fiscal policy rather than monetary policy to address the current excess demand.

Agree with use of fiscal policy to bring inflation down which will require a reduction in the national debt which is not easy going into an election.

However, I am beginning to come around to the idea that the 2024 election for the Tories is already lost so they could screw over Labour by not trying to prop up the economy, take a moral high ground of being prudent and then watch as the economy implodes 2025-2030 and then step back in again when the electorate demand another change in govt.

I'd like to think even the Tories want to avoid running the country into the ground, seeing as their friends have investments in this country (rather than them having any morals). And if they did that, I don't think it'll be a case of 5 years and the electorate will forget what's happened. The blatant corruption and disregard for anyone but themselves has been staggering. 

lojo1000

propertyhunter said:

lojo1000 said:

michaels said:

Given commodity prices have not just stopped increasing but have actually fallen, we could get a situation where in the short term falling goods prices go some way to offsetting rising wages.  However that is only likely to be temporary but might give us 5% by the end of the year before inflation rises again.

I suspect in the medium term interest rates will bite, employment will fall and the economy will overshoot sharply on the way down - just as interest rate increases have proved to be very slow acting, any cuts will have the same long and variable lags.  The govt will then be under pressure to use fiscal policy to prevent a recession being too deep and steep but we are not exactly starting from a point where fiscal expansion makes sense....

The is a simple, effective, fast acting, easily reversible, fairer, beneficial for the deficit -  but politically unacceptable solution: use fiscal policy rather than monetary policy to address the current excess demand.

Agree with use of fiscal policy to bring inflation down which will require a reduction in the national debt which is not easy going into an election.

However, I am beginning to come around to the idea that the 2024 election for the Tories is already lost so they could screw over Labour by not trying to prop up the economy, take a moral high ground of being prudent and then watch as the economy implodes 2025-2030 and then step back in again when the electorate demand another change in govt.

I'd like to think even the Tories want to avoid running the country into the ground, seeing as their friends have investments in this country (rather than them having any morals). And if they did that, I don't think it'll be a case of 5 years and the electorate will forget what's happened. The blatant corruption and disregard for anyone but themselves has been staggering. 

It doesn't need to be "running into the ground"; just not "propping up the economy" would put the economy and Labour into a downward spiral.

Sure, the Tories have a vested interest in property but they're well connected enough to know to get out ahead of (or simply hedge) the downward spiral with a view to getting back in (to govt and property) in 5 years time.

The govt, BoE and all the top bankers will know amongst themselves what the policy is going to be before Main Street has a clue.

Average BTL Joe has no idea whether they will be saved at some point - they probably remain hopeful and are haning on for good news - but if you're well connected, you probably already know what the Conservative playbook is for the next election.

TheAble

More tax Michaels? I lose over a third of my income to tax and NI - I'd say that's enough don't you think?

michaels

TheAble said:

More tax Michaels? I lose over a third of my income to tax and NI - I'd say that's enough don't you think?

But it isn't more tax, actually it is less (but paid sooner)

How so I hear you ask?

Govt debt/deficit is simply deferred taxation.  If we increase tax now and use it to pay down the debt that means:
1) An equal amount less tax in future
2) Additional less tax in the future because less debt interest is payable
3) Even more less tax as the debt is more sustainable so the risk premium interest rate (currently UK pays more for its debt than Greece) is reduced

Further bonus, high interest rates deter investment which in turn hurts productivity.  Removing demand by taxation instead means less hit to investment.

TheAble

Govt debt is beyond the point it will ever be paid off. Osborne tried his best but couldn't even eliminate the deficit, never mind paying off any debt. And that was with zero interest rates...

wheldcj

I know i have said it before but a large increase in inheritance tax or a wealth tax on property profits payable on death would help massively to reduce government debt without hitting the young/middle aged with income tax/VAT increases.

Altior

In 2022/23, UK government raised over £1,017 billion in receipts – income from taxes and other sources. This is equivalent to around 40% of the size of the UK economy, as measured by GDP, which is the highest level since the 1980s.

In 2023-24, we expect public spending to amount to £1,189 billion, which is equivalent to around £42,000 per household or 46.2 per cent of national income.

Pretty obvious what the issue is here I would suggest. And it isn't not raking enough tax.

BikingBud

michaels said:

TheAble said:

More tax Michaels? I lose over a third of my income to tax and NI - I'd say that's enough don't you think?

But it isn't more tax, actually it is less (but paid sooner)

How so I hear you ask?

Govt debt/deficit is simply deferred taxation.  If we increase tax now and use it to pay down the debt that means:
1) An equal amount less tax in future
2) Additional less tax in the future because less debt interest is payable
3) Even more less tax as the debt is more sustainable so the risk premium interest rate (currently UK pays more for its debt than Greece) is reduced

Further bonus, high interest rates deter investment which in turn hurts productivity.  Removing demand by taxation instead means less hit to investment.

You really think so?

Just look at the debt junkies and see what really happens when they create headroom, they go and ruin the progress by squandering it on; the next can't be without widget, gadget, crisis, war or some other supposedly great idea.

If only we had engaged a part of the QE on generating something tangible other than propping up the banks and keeping the property bubble inflated! You know something like a few million houses or ensuring the utilities; power, water, broad band were fit and ready for the challenges of the next 50-70 years not only would we have skilled workforce but also have much better national infrastructure rather than this delusion of wealth from overpriced housing coupled with a national crisis about how to manage the high levels of self inflicted debt.

BikingBud

TheAble said:

Govt debt is beyond the point it will ever be paid off. Osborne tried his best but couldn't even eliminate the deficit, never mind paying off any debt. And that was with zero interest rates...

Sad thing is Government debt is our debt and our children's debt and our grandchildren's debt.

And if we keep up this pretence of only making money from services we will always be enslaved to it.