Are we expecting the BOE Base Rate to drop to 4.25% on 8th May?

lojo1000

Some of you may think stock prices have nothing to do with where mortgage rates are going.

Today's price action in tech stocks is potentially the start of Main St (and MSM) waking up to hype<>growth and a crash in consumer confidence.

Likely to be met however - EVENTUALLY - with more central bank 'magic money' and even more asset inflation (you just may not have a job).

RelievedSheff

I do think that they will lower rates by 0.25% in February despite not agreeing with the move.

Strummer22

IAMIAM said:

la531983 said:

IAMIAM said:

Don's say that mortgage due in June, and do not fancy securing a fix rate at 4.4% just yet!

Lenders wont suddenly drop their rates as soon as the BoE drop theirs, predictions of rate movements are already priced in, as well as the rates being based on other factors.

Everyone says this. But lenders have ALWAYS dropped or increased their rate the week before or week after an annoucement. Since 2020, Don't make me get out my spreadsheet tracking dates aand rate changes at HSBC, Halifax and Nationwide. I have no life. lol

The markets and banks will have factored in the anticipated base rate moves. 

However, what's public perception if the base rate dropped? That mortgage rates will drop, and lenders that don't drop rates are profiteering. Those lenders who need to drum up a bit more business drop rates - not directly in response to the base rate, but to market forces. 

Conversely an increase in base rate is a reasonable excuse for lenders to increase rates and make more money.

It's a bit like petrol prices in response to oil market prices. If oil prices decrease, retailers do eventually pass on the decrease, but only if market forces (competition) makes them do it to retain market share. Of course, when oil prices increase retailers have no hesitation putting petrol prices up.   

Hoenir

Strummer22 said:

Conversely an increase in base rate is a reasonable excuse for lenders to increase rates and make more money.

For clarification. BOE base rate is the interest rate at which the BOE will lend to banks to allow them to maintain the required level of liquidity on their books overnight. Base rate also determines how much banks can leverage their balance sheets by. The BOE use this tool to influence the money supply. As banks are able to create money using fractional reserve banking. Raising base rate contracts the money supply. Lenders therefore need to make more on a lower amount lent. 

BikingBud

Financial hysteresis - and that is why financial modelling is just guesswork, it is a system for which no one knows the control law.

Poor lenders, poor petrol companies! But they always seem to win  

lojo1000

Consumer debt continues to expand as BoE continues to loosen policy to accommodate lower productivity despite above target inflation and positive real wages benefitting asset holders vs renters (old vs young).

Meanwhile, unemployment remains near historic lows (albeit ppl aren't being productive).

Why is the BoE doing this? Unless you get money into the hands of those who will spend vs invest then you will not increase GDP by cutting rates.

Expect this merry-go-round to continue. 

If you want to increase growth, do not incentivise ppl to invest in pre-existing property - it is not a productive use of capital to invest in pre-existing housing. Literally billions of newly created £ are issued every year to buy something which already exists.

That is new capital which banks should be incentivised/ allocating to improving UK productivity. 

Why not reduce stamp duty on new builds and increase stamp duty on pre-existing homes?

Strummer22

lojo1000 said:

Consumer debt continues to expand as BoE continues to loosen policy to accommodate lower productivity despite above target inflation and positive real wages benefitting asset holders vs renters (old vs young).

Meanwhile, unemployment remains near historic lows (albeit ppl aren't being productive).

Why is the BoE doing this? Unless you get money into the hands of those who will spend vs invest then you will not increase GDP by cutting rates.

Expect this merry-go-round to continue. 

If you want to increase growth, do not incentivise ppl to invest in pre-existing property - it is not a productive use of capital to invest in pre-existing housing. Literally billions of newly created £ are issued every year to buy something which already exists.

That is new capital which banks should be incentivised/ allocating to improving UK productivity. 

Why not reduce stamp duty on new builds and increase stamp duty on pre-existing homes?

Plenty of capital in the 'merry-go-round' goes into improving existing housing stock. Stamp duty (or other) incentives could be applied to purchases that bring defunct housing stock back into use. 

Adding an incentive to new builds could also work, if demand for new builds was higher then developers would build them faster. 

lojo1000

Strummer22 said:

lojo1000 said:

Consumer debt continues to expand as BoE continues to loosen policy to accommodate lower productivity despite above target inflation and positive real wages benefitting asset holders vs renters (old vs young).

Meanwhile, unemployment remains near historic lows (albeit ppl aren't being productive).

Why is the BoE doing this? Unless you get money into the hands of those who will spend vs invest then you will not increase GDP by cutting rates.

Expect this merry-go-round to continue. 

If you want to increase growth, do not incentivise ppl to invest in pre-existing property - it is not a productive use of capital to invest in pre-existing housing. Literally billions of newly created £ are issued every year to buy something which already exists.

That is new capital which banks should be incentivised/ allocating to improving UK productivity. 

Why not reduce stamp duty on new builds and increase stamp duty on pre-existing homes?

Plenty of capital in the 'merry-go-round' goes into improving existing housing stock. Stamp duty (or other) incentives could be applied to purchases that bring defunct housing stock back into use. 

Adding an incentive to new builds could also work, if demand for new builds was higher then developers would build them faster. 

I suspect some of it does not actually end up improving the property but rather goes to pay the bills.

Strummer22

Base rate cut by 0.25% to 4.5%. Interesting to note that two of the nine committee members voted for a 0.5% cut (the rest for 0.25%). This strongly indicates another cut either in March or May, barring unexpected economic data.

The BoE predicts headline CPI inflation to rise to 3.7% in 2025 Q3 before falling again, but apparently thinks this is transient, won't increase underlying domestic inflationary pressures, and shouldn't hinder the plan to cut rates. Who knows how that'll all pan out?

BikingBud

It's all guesswork: