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

Sarah1Mitty2

Strummer22 said:

Sarah1Mitty2 said:

Andreg said:

Just 18 months ago a base rate over 5% was completely unimaginable to many people.  With today's news of 7.6% wage increases, I can see the base rate being over 8% by the end of 2024, with inflation still higher than 5% pa at that time.

Yes, for a long time now I have thought that 8% or 9% base rate is easily reachable, the politicians will just lecture about the dangers of inflation to the wider economy and keep raising if they have to, they really need a proper recession now to shut down people`s belief that they can demand wage rises and still keep their job, as the more informed/more experienced posters always preached - the less debt you have in these sorts of economic times the better off you will be. If it was up to me I would leave base rate at around 5% for a few years and let this totally insane and damaging to society property bubble deflate away, but that isn`t how economic events usually play out is it, they usually turn very quickly and very brutally, catching out people who didn`t think or plan ahead.

Real wages are likely to be above tomorrow's inflation update, the first time this has happened since 2021. 

Given that:
1. the last 12 months has seen the biggest negative gap between wage rises and inflation this century, i.e. the biggest decrease in real wages;
2. income tax bands have been frozen, so a decent chunk of the extra money people have been earning has gone on tax; 
3. food and energy prices remain high; and
4. for those renting or with a mortgage, housing costs have spiked.

is there actually a material risk of a wage-price spiral? All of the above factored combined have significantly reduced spending power. Furthermore, is there evidence of a wage-price spiral? Can you say there is even the beginning of one, if inflation is now falling even as wage increases speed up? 

Regarding China, you seem to be saying either they will drive up global commodity prices (as per the article you linked) or a creaky economy will spook the markets into increasing the cost of borrowing. Well, since that article was published (May last year), commodity prices have cooled significantly, which shows just how quickly the situation can change in either an inflationary or deflationary direction. Regarding the second point I don't necessarily see market borrowing costs affecting the BoE rate, if anything it is expectations regarding the BoE rate that affect market rates... 

FWIW I don't see interest rates getting close to 8 - 9%, I expect a peak of 5.75%. Headline inflation will be below 5% by the end of this year and probably around 3% by the middle of next year. Getting it down to 2% or below will take a while, but I don't think it will take interest rates >6%, or any interest rate hikes next year, or a recession to do so. 

Discussion on Bloomberg today implying that China selling U.S Treasuries as they muck about with their currency could be something to fear, and may already be partly responsible for bond yields at 15 year highs, although I have read other opinions over the years that say the China dumping T-Bills scenario is well over-blown as a global risk, also on Bloomberg the interesting point that China exporting deflation plus U.S Demand (still going) is helping out EM and making the pain less than it could be off a strong dollar, although my emerging markets fund is down today more than I have seen in a long time, that will be a buying opportunity at some point though.

woahsoah

I'd really prefer a push higher sooner, ideally 6%+. I switched to fixed when it looked like rates were on the up and have 3 years left to switch back to a tracker. I suspect it will have topped by then.

Sarah1Mitty2

A smart move would be 6% at the next meeting.

Sarah1Mitty2

6% and stop, try to hold them there for a few years.

michaels

Sarah1Mitty2 said:

6% and stop, try to hold them there for a few years.

I agree, 10% unemployment (long term, structural), a cratered housing market with no one moving and a govt debt default are all things I would like to see too.

RelievedSheff

They wont get that far. 5.5% then hold and gradually creep down over the next couple of years to around 4% by 2026.

Just in time for the "great crash" of 2026 if the 18 years cycle is to be believed. If the cycle is accurate what we have now is a minor blip and house prices will rise another circa 20% in the run up to 2026 when they will fall back again.

Not sure I believe it myself but it proved right in 1990 and 2008. 

naf123

RelievedSheff said:

They wont get that far. 5.5% then hold and gradually creep down over the next couple of years to around 4% by 2026.

Just in time for the "great crash" of 2026 if the 18 years cycle is to be believed. If the cycle is accurate what we have now is a minor blip and house prices will rise another circa 20% in the run up to 2026 when they will fall back again.

Not sure I believe it myself but it proved right in 1990 and 2008. 

What would happens to intrest rates in the event of a massive housing crash eg will it go back to above zero or will it go higher than 6%?

lmitchell

RelievedSheff said:

They wont get that far. 5.5% then hold and gradually creep down over the next couple of years to around 4% by 2026.

Just in time for the "great crash" of 2026 if the 18 years cycle is to be believed. If the cycle is accurate what we have now is a minor blip and house prices will rise another circa 20% in the run up to 2026 when they will fall back again.

Not sure I believe it myself but it proved right in 1990 and 2008. 

The thing with these 'forecasts' is that you can never rely on historical data to inform the future. In 1990 and to a lesser extent 2008, the economy had a much different make-up. In 1990 I'd wager housing supply was much greater and this was probably the case even in 2008.

I had seen this 18 year cycle discussed on YouTube but I have to say I'm highly sceptical. Why would it crash in 2026 when rates fall to their lowest point in 3 years? Besides, what would a 'crash' look like? It sounds like you're suggesting prices would rise 20% and then fall 20%, so we'd only be back to where we are right now?

Sarah1Mitty2

naf123 said:

RelievedSheff said:

They wont get that far. 5.5% then hold and gradually creep down over the next couple of years to around 4% by 2026.

Just in time for the "great crash" of 2026 if the 18 years cycle is to be believed. If the cycle is accurate what we have now is a minor blip and house prices will rise another circa 20% in the run up to 2026 when they will fall back again.

Not sure I believe it myself but it proved right in 1990 and 2008. 

What would happens to intrest rates in the event of a massive housing crash eg will it go back to above zero or will it go higher than 6%?

Nothing would happen, they would still be "inflation data dependent" the risk of high and sticky inflation far outweighs the negatives of house prices dropping, in fact that could dampen the wage rises demands as basic shelter starts to cost less debt.

naf123

Intresting. If house prices fell, debt becomes cheaper and then inflation will go up again ....

Basically 2%= inflation is 2 or 3% BoE rate ? Is that the best we can hope for ?