That time of the month - Interest Rates! [Jan 08]

merlinthehappypig

It's worth reading the article posted by !!!!!! in the House price crash thread.

http://forums.moneysavingexpert.com/showthread.html?t=580154&page=46 )

A good explanation of the problems (mostly of their own making) facing the Govt (and MPC) about interest rates and why whatever they decide will cause problems.

Generali

Guy_Montag wrote: »

Ok, but when energy goes up by 20% (say it accounts for 5% of CPI (£1k of median wage c. £20k)... It should then take up 6% of CPI, so discretionary goods fall out the basket in favour of high rising essentials as people stop spending on them.

It's true. Also, energy price rises will also feed through into other prices (shops and factories are heated, oil is used to transport finished goods and make fertilisers for example).

However, even spending on essentials can often be cut. I know plenty of people who wear a t-shirt and have the radiator on or drive half a mile down the road to go to the shops.

sm9ai

very true, and there is probably people who have a second/third room that is not used with the radiator on in there.

Which reminds me........

hgllgh

Generali wrote: »

Out of interest, what would you do? Do you see high inflation as the biggest risk from here?

I would plumb for a hold but I don't think they have got the b0ll0cks to do that. They didn't in 2005 and I don't think they have now.

Surely they should see inflation as their biggest risk now. All of the headlines are warning them that prices are accelerating "Energy bills to rise by up to 27%", Train operators increasing fares by, I think it was, 27%. (Inflation isn't 27% is it?)
The pound just seems to be disappearing. If they at least hold rates where they are it should help.

Mozette

I've voted for a decrease, but I admit it's partly wishful thinking!

JonnyBravo

They'll hold.
As predicted by me last month.

Generali

hgllgh wrote: »

I would plumb for a hold but I don't think they have got the b0ll0cks to do that. They didn't in 2005 and I don't think they have now.

Surely they should see inflation as their biggest risk now. All of the headlines are warning them that prices are accelerating "Energy bills to rise by up to 27%", Train operators increasing fares by, I think it was, 27%. (Inflation isn't 27% is it?)
The pound just seems to be disappearing. If they at least hold rates where they are it should help.

As I say, I'd vote to cut by 25bps. Without a run on the pound (a real risk I admit) I don't see inflation in a few months or a year being likely to be a huge problem.

The US is possibly already experiencing -ve growth and I think it will technically be in recession from the middle of the year (that is 2 consecutive quarters of -ve growth). As the US is something like 1/7th of world consumption, a recession there is likely to have a big impact on pricing power for companies across the world. That includes oil and commodities firms.

I certainly feel the pain of rising fares. I was thinking about treating myself to a 1st Class season ticket until I found out it was £3500! I see why they put such thick glass in station booking offices. It's because of the vast amount of money that must be in there. If you could make off with a ticket machine you could retire!

firsttimetom

I think they will have to hold and probably follow with a cut in February.

If I knew more about currencys, I'd ditch the sterling and invest in the Yen/Euro. But I don't, so i'm hoping I wont have to watch my savings inflate away.

Incidentally Thursdays are my day off and I was enjoy watching BBC 24 at Noon - my girlfriend on the otherhand doesn't!!

Rover

Things could be swaying to 0.25% cut. Alot of pressure on the MPC.

Generali

Rover wrote: »

Things could be swaying to 0.25% cut. Alot of pressure on the MPC.

From ft.com

The following items appeared on the Reuters screen earlier today (January 8, 2008):
• 12:09 08Jan2008 RTRS-UK'S BROWN SAYS BY THE END OF THE YEAR BELIEVES INFLATION WILL BE AROUND 2 PCT
• 12:31 08Jan2008 RTRS-UK'S DARLING SAYS WILL DECIDE ON REAPPOINTMENT OF BOE GOVERNOR IN NEXT FEW WEEKS
• 12:35 08Jan2008 RTRS-UK'S DARLING SAYS POSITION OF STABILITY IN ECONOMY HAS GIVEN BOE MPC ROOM FOR MANOEUVRE

The odds of a cut on betfair have dropped considerably too.