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

Hoenir

Strummer22 said:

RelievedSheff said:

With today’s inflation figures then there is no need for any change in BOE interest rate in March.

Given the huge lag in the effect of monetary policy changes, I disagree. BoE shut the door after the horse had bolted when rates needed to go up, and look set to make the same mistake again on the way down.

BOE has a remit to maintain financial stability.  Given that were the first Central Bank to move rates upwards and also been the most aggressive in implementing QT.  They appear to have managed the situation pretty well so far. The wider economy hasn't been unduely impacted with a correction underway. Worth also remembering that they are looking ahead 12-18 months. Not reacting as the media does to today's events then applying hindsight. 

Strummer22

Hoenir said:

Strummer22 said:

RelievedSheff said:

With today’s inflation figures then there is no need for any change in BOE interest rate in March.

Given the huge lag in the effect of monetary policy changes, I disagree. BoE shut the door after the horse had bolted when rates needed to go up, and look set to make the same mistake again on the way down.

Given that were the first Central Bank to move rates upwards and also been the most aggressive in implementing QT.  They appear to have managed the situation pretty well so far.

Worth also remembering that they are looking ahead 12-18 months. Not reacting as the media does to today's events then applying hindsight

Best of a bad bunch then?

If rate changes have their greatest effect after ~18 months, then whatever the rate was in August 2022 will be having a strong effect now. The rate then was below 2%. The current rate of 5.25% will still be dragging heavily on the economy in August 2025. I read a release from a consultancy a couple of months ago (unable to find the link now, darn) which estimated that the neutral rate for the UK, which would be neither inflationary nor disinflationary, is currently around 3%. 

Obviously only in hindsight will we see how this plays out. However, I'm certain that rates will need to come down by 1.5 - 2% by next spring and the process should probably have already started. 

The rhetoric will change drastically by May when headline inflation is something like 1%. Remember, the BoE is saying inflation will possibly drop *just* below 2% target briefly in Q2 2024 before rebounding, and not so long ago they were saying it wouldn't drop to 2% at all in 2024. Conversely, I've been saying for months (e.g. https://forums.moneysavingexpert.com/discussion/comment/80405653#Comment_80405653) that inflation would hit target in the spring, and even I over-predicted the current inflation rate by about 1%. Am I an economist? No. Do I have a clue what I'm saying? Not really. What does that say about the MPC then?

Altior

Hoenir said:

Strummer22 said:

RelievedSheff said:

With today’s inflation figures then there is no need for any change in BOE interest rate in March.

Given the huge lag in the effect of monetary policy changes, I disagree. BoE shut the door after the horse had bolted when rates needed to go up, and look set to make the same mistake again on the way down.

BOE has a remit to maintain financial stability.  Given that were the first Central Bank to move rates upwards and also been the most aggressive in implementing QT.  They appear to have managed the situation pretty well so far. The wider economy hasn't been unduely impacted with a correction underway. Worth also remembering that they are looking ahead 12-18 months. Not reacting as the media does to today's events then applying hindsight. 

Dumping assets when there was a massive sell off, and telling the market ahead of time that's what they would be doing! When sterling was being crunched vs usd. That aggression was transparently aimed at getting rid of political leadership that they didn't want. 

They may have moved slightly earlier. By 0.15% !! That was certainly going to send the message out, and tell rampant inflation where to go. 

lojo1000

This UK 6m yield at 5.25% (=BoE base rate) is telling me the market expects rates to be on hold over the next 6 months.

The 1y yields does suggest a cut within 12m but if the Govt give out election tax cuts, it is likely the market will price any cut out until 2025.

Strummer22

lojo1000 said:

This UK 6m yield at 5.25% (=BoE base rate) is telling me the market expects rates to be on hold over the next 6 months.

The 1y yields does suggest a cut within 12m but if the Govt give out election tax cuts, it is likely the market will price any cut out until 2025.

So markets are prefect (or even good) predictors? I didn’t have you down as a neoclassicalist.

lojo1000

Strummer22 said:

lojo1000 said:

This UK 6m yield at 5.25% (=BoE base rate) is telling me the market expects rates to be on hold over the next 6 months.

The 1y yields does suggest a cut within 12m but if the Govt give out election tax cuts, it is likely the market will price any cut out until 2025.

So markets are prefect (or even good) predictors? I didn’t have you down as a neoclassicalist.

We know markets are notoriously bad predictors of course. Are we fooling ourselves to even try?

I guess it's the wisdom of large numbers why we do try. But it is the interconnectedness of all of our decisions which throws estimates off. It's fun to try though.

One great example of those interconnected decisions is why house prices are so ludicrous compared to incomes and yet people are willing to take on so much debt to pay the price.......it's the greater fool theory.........and we have so many fools.

let's hope we don't have a war....let's hope we don't have hyperinflation.....let's hope we don't have a recession.

Don't worry they say, the govt will bail us out just like they bailed the banks out the last time and bailed us all out during Covid.

Do we ever stop to think who will bail the government out? We are of course hoping it isn't us. But we don't seem to care that it will be our children, or their children.

The price of assets rising is not the illogical result, it's peoples willingness to enter into debt to buy those assets.

BikingBud

lojo1000 said:

Strummer22 said:

lojo1000 said:

This UK 6m yield at 5.25% (=BoE base rate) is telling me the market expects rates to be on hold over the next 6 months.

The 1y yields does suggest a cut within 12m but if the Govt give out election tax cuts, it is likely the market will price any cut out until 2025.

So markets are prefect (or even good) predictors? I didn’t have you down as a neoclassicalist.

We know markets are notoriously bad predictors of course. Are we fooling ourselves to even try?

I guess it's the wisdom of large numbers why we do try. But it is the interconnectedness of all of our decisions which throws estimates off. It's fun to try though.

One great example of those interconnected decisions is why house prices are so ludicrous compared to incomes and yet people are willing to take on so much debt to pay the price.......it's the greater fool theory.........and we have so many fools.

let's hope we don't have a war....let's hope we don't have hyperinflation.....let's hope we don't have a recession.

Don't worry they say, the govt will bail us out just like they bailed the banks out the last time and bailed us all out during Covid.

Do we ever stop to think who will bail the government out? We are of course hoping it isn't us. But we don't seem to care that it will be our children, or their children.

The price of assets rising is not the illogical result, it's peoples willingness to enter into debt to buy those assets.

And it the last 2 points that really drill home how insular and greedy we have become.

MobileSaver

lojo1000 said:

The price of assets rising is not the illogical result, it's peoples willingness to enter into debt to buy those assets.

Ignoring the inconvenient truth that a third of all property bought in the UK is bought with cash and no debt... what is the alternative for Joe Bloggs and his partner who need somewhere to live?

BikingBud

Ignoring the blatantly obvious corollary, the vast majority of people do need to borrow and appear to be doing so to excess. 

lojo1000

MobileSaver said:

lojo1000 said:

The price of assets rising is not the illogical result, it's peoples willingness to enter into debt to buy those assets.

Ignoring the inconvenient truth that a third of all property bought in the UK is bought with cash and no debt... what is the alternative for Joe Bloggs and his partner who need somewhere to live?

I'm not sure whether you mean somewhere to buy, as opposed to somewhere to rent or buy?

But I agree with what I think is the inference that for individuals it is very hard not to overcommit to debt. Renting, whilst all around you are paying incredible multiples of their income on housing and seeing them 'get on the property ladder', is hard for most people. Also, I understand many people view ownership differently from rent in terms of the security it gives them.

And really here we are talking about a societal problem. We think individually but the decisions we make have a collective impact on society and hence other individuals. It is therefore the government, being in a position better able to consider and deal with those collective, societal decisions, which should be stepping in to resolve the crisis.

My practical solution is to limit the amount of leverage allowed in buying a house. Reducing debt, reduces returns to equity in the purchase and hence BTL becomes less attractive. Increasing debt increases financial risk even if you're buying the property to live in. Reducing this monetary demand will reduce the amount bid for housing.

Cap leverage at 85% in year one for owner-occupiers (50% for BTL) and let's see the impact on house prices. A crash in prices is not what we want, but can we agree that without a solution, the ever-upward spiral of prices in excess of incomes is not good for our society and the future of our children?