Are Interest rates on the slide?

from_suffolk

In the last few days we have seen the rate for the A&L on live saver fall and then only this morning I get a letter from Marks and Spencer to tell me the rate of my ISA is to drop by .25%.

Are these institutions anticipating a fall of interest rates and trying to squeeze a little extra before the Bank of England makes it official?

If so it seems we should all be on our toes.

I'm off to investigate the AA on line account.

deemy2004

I think the current trend in interest rates is a correction against the main trend which is UP

THUS ! Since the trend has been underway for some 6 months it is likely we are nearing its end with a resumption of the upward pressure in interest rates which will first manifest itself in interest rate futures, then the banks and building society interest deals on fixed rates, then the BOE and finally the instant access accounts.

SO My advice - DON'T FIX at current rates ! Unless your doing the high interest regular savers...

alared

These cuts come out of the blue for no good reason at all,except greed and profiteering, (LTSB)is another one.
If and when the BoE does cut these institutions will not hesitate to cut once again and probably by more than the BoE.

deemy2004

They don't come out of the blue !

Its nothing to do with profiteering its to do with interest rate futures which peaked in March 05 and have fallen by over 0.5% since !

Like I say above I see this as a correction... But the Banks and BS move much slower hence they are reacting to the drop in interest rates now rather than reacting minute by minute.

The same way in 4 or 5 months time as the trend will have resumed to back towards 5.25% then these same banks will again be raising rates.

The fundementals are against a falling interest rate environment... The inflation genie that has been in the bottle for over 10 years is definetely attempting to break loose, what with crude setting a new record today !

kinesin_2

Deemy is so right about inflation.. The BoE will have to keep a handle on this and keeping IR stable - i.e no change is the very best option as the moment. Given the new high price of crude, and the costs this brings onto everything purchased in the UK I doubt IR's will fall within the next 3 months, but remain stable and then up by 0.25 towards December.

One of the reason that the banks might be lowering saving IR could be due to bad debt and the costs it is having on their profit, by paying us savers all a little less, that debt can be a little larger and still not cause shareholder blues _pale_

Hobo_2

inflation/deflation tightrope? crude up= costs up, transport/ mfg/heating & job insecurity factor in UK compulsory pension/savings on horizon so less disposable household income= less consumer spending MAYBE?

alared

Interestingly on todays business news most European countries are pushing for a cut in their rate at the next meeting.

deemy2004

Well with 12% unemployment (Germany), 10% unemployment (France)... Italy in recession.

You could say they are in dire straits ! And are now in the panic what the hell measures position - i.e. !!!!!! inflation ! we are going down the drains economic state !!!!!!!!

Take Italy .... Because of the euro they are literally being bled dry... it is going into a deflationary spiral and it can't devalue its currency to stave it off for another decade or so as it used to do because basically the Italians cannot compete hence the reason why the Lira used to be millions = £1 etc... since they would just let the currency devalue and were used to it. But not anymore !

But the world is definetly moving towards INFLATION - take a look at the commodity futures markets - not only crude at record highs but also copper ! and many others near highs... The reason for this offcourse is CHINA !

Only when china goes bust is there a chance we can avoid the stagflation which looks like being the order of the day for the next decade or so..

Yeh cheap chinease goods have kept inflation low in the west for a decade but now china is passing the point where the net future effect on the world is deflationary to inflationary.... Thus chinease consumption will ratchet up future inflation by a few notches ... this is likely to continue for a at least a decade as there is no sign of a bust in china. On the contrary India appears to now becoming the next china - Two relatively new monster consumers side by side....... Yep we are going into a decade or more of inflationary pressures.

from_suffolk

With the latest news of more interest rate cuts by two more financial institutions it seems to be a worrying trend.

An article in last sundays moneysection of the Mail on Sunday also discussed this point relay the comments of some in the investment industry being openley critical and accusing some institutions of profiteering.


I'm still looking for a new instant saving account but its a bit difficult to know what to do at the moment.

oldagetraveller

On the other hand (call me Mr Cynical) - if in the future interest rates were raised by a small amount these financial institutions could then increase their rates and announce how good they were to everyone by doing this in line with Bank of Endland!? Hoping, of course that we all forget that they lowered them in the first place!

deemy2004

The following chart of the 12 month interbank rate tells you why rates are being cut. In March it was 5.30%, today it is at 4.60% That is a 0.7% DROP in interest rates ! So markets have gone from pricing in a rise in interest rates to a fall in interest rates.


http://focus.comdirect.co.uk/_common/informer/lib/chart/middlechart.chart?iInd0=na&iInd1=10&iInd2=na&iIndcount=1&iType=1&minYear=883699200&sAv1=na&sAv2=200&sAv2count=1&sBench1=na&sBench2count=1&sBenchcount=1&sScale=linear&sSettings=chart2&sSymbol=GBP9Y.FX1&sTimeframe=1Y&sTimestamp=1088517600+1120053600+883699200