Inflation shock leaves markets fearing three interest rate rises this year

La_Contessa

meanmachine wrote: »

Again, my apologies.

To be honest, I don't know what your opinions are. I do know from your post what the opinions of Nationwide and Phil and Kirsty are, but as I rather rudely explained, these types of people will always put a gloss on things.

One's a lender, the other a, well, let's be kind and call them "property presenter".

But I'll try to be kinder in future.

thanks for your apologies, mean machine. I guess at the moment I am being rather sensitive, as I am between a rock and a hard place due to someone else's bad behaviour and not my own stupidity. I came here to this website to find answers of how to tide myself over while I sort myself out and find some solutions, not necessarily policitically mse, after all that has happened it just felt like I was being put down,

I don't pretend that I know it all, but I am trying to learn about it.... and that has to be worth something.

tradetime

Treadmill wrote: »

Wasn't too long ago analysts where predicting up to 1.5% intesrest rate cuts by the end of the year, what are they predicting now ?

I think those predictions are assigned to the trash can now, and I suspect most would expect the BOE to sit tight going forwards. To steal a cliche the BOE is kind of in the "perfect storm".On the one side a slowing economy being dragged down by a housing correction, the financial sector, which forms a major part of UK Plc's economy struggling to stay afloat adding further weight to the economy, on the other, surging inflation and a weakening pound.

1.) They could cut interest rates to stimulate the economy and provide support to the housing market, weaken the pound to make the UK more competetive. But because the banks are in a storm of their own they are not passing through cuts, so likely this does nothing for housing. Also if they do cut, inflation will likely rise and weakening the pound whilst it will make business more competetive imports will be more expensive further fueling inflation in a vicious cycle

2.) So they could raise rates to fight inflation, but this will likely drive the housing market deeper into trouble, coupled with slowing the already weak economy and almost certainly ensure a recession. There is also no guarantee that raising rates will actually have any effect on inflation as currently it is a global phenomenon, also driving us into a recession will likely negate any positive effects rate raises have on the currencey, so the pound may weaken anyway.

I suspect they will sit on the fence and take action in respose to what other central banks do, essentially fight a rear guard action. I think the ECB will raise first, and they will react to the effect of that,possibly raising one to two meetings after. Mervyn King has already stated he expects inflation to rise above 4%, this to me suggests that he is priming the pubblic for those headlines and signals they will not act aggressively against it. But it's anybodys guess really.

ixwood

Chickens, home, roost.

Death by recession/depression or inflation. Not a nice choice, but the inflation route is long and drawn out, so they're bound to choose that.

bclark

Treadmill wrote: »

Wasn't too long ago analysts where predicting up to 1.5% intesrest rate cuts by the end of the year, what are they predicting now ?

"Howard Archer, City research firm Global Insight [follows news of 3.3% inflation]: 'Interest rates will not be coming down further any time soon and that if the Bank of England does act in the near term, it will be to raise interest rates. For now, we are sticking to forecast that the Bank will keep interest rates at 5% for many months to come, before ultimately trimming them. However, it is looking increasingly likely that interest rates will not be cut before 2009, unless the economy really falls off a cliff over the coming months.'"

I have just read through this thread with a little bit of interest after stumbling in here and have noted with interest that much of the debate on Interest rates almost certainly shooting up is based on one article. I have just googled the subject and it seems that most ecomomists are predicting that there will be no change at all to interest rates for quite some time and then maybe a fall later next year.

Obviously we don't know the future but a lot of the talk of rises in the near future seems to have come off the back of the markets pricing in a possible rise, which I believe is merely a way of them protecting themselves if a shock rise happened.

jamescredmond

meanmachine wrote: »

Actually, I've just re-read my post and - yes, the tone is off - but what I'm saying is bang on, so if a little straight talking gets people to think about where so-called "experts" are coming from, then that's a good thing.

it's sometimes advisable to check back on previous posts - in this case I should have.

having now done so, it appears that la contessa is a 'portfolio' btl'er, comprising of at least 3 btl's and can now feel the HP sands beginning to shift.

we could question the wisdom of portfolo-ing but, ultimately, the choice was hers.

we could also gasp in disbelief that any LL could quote/believe the garbage spewing out of krusty and phil.

it's me who owes you an apology, meanmachine.

WTF?_2

bclark wrote: »

"Howard Archer, City research firm Global Insight [follows news of 3.3% inflation]: 'Interest rates will not be coming down further any time soon and that if the Bank of England does act in the near term, it will be to raise interest rates. For now, we are sticking to forecast that the Bank will keep interest rates at 5% for many months to come, before ultimately trimming them. However, it is looking increasingly likely that interest rates will not be cut before 2009, unless the economy really falls off a cliff over the coming months.'"

I have just read through this thread with a little bit of interest after stumbling in here and have noted with interest that much of the debate on Interest rates almost certainly shooting up is based on one article. I have just googled the subject and it seems that most ecomomists are predicting that there will be no change at all to interest rates for quite some time and then maybe a fall later next year.

Obviously we don't know the future but a lot of the talk of rises in the near future seems to have come off the back of the markets pricing in a possible rise, which I believe is merely a way of them protecting themselves if a shock rise happened.

The message they are trying to put out is that interest rates are going to stay the same. Unless of course those troublesome proles start demanding more cash to pay for food and heating.

It's clear that there's a massive reluctance to put rates up. I can see why, given the perilous state of the economy but the bottom line is that inflation will cause just as much damage and have longer lasting repercussions if it takes a hold.

The excuse is that most of the inflation is 'external'. This is of course irrelevant as higher interest rates would boost the value of Sterling which would reduce prices (in pounds) of all those external factors.

The calculation they are making is that people will be too worried about losing their jobs to start demanding higher wages. They might be right but I predict some very real old-style industrial discontent this winter if oil prices are still high.

Plasticman

!!!!!!? wrote: »

............. but I predict some very real old-style industrial discontent this winter if oil prices are still high.

Or if fuel prices increase by 40%.............

http://news.bbc.co.uk/1/hi/business/7461635.stm

....higher fuel prices......
....demand for higher wages.....
....higher inflation.....
....higher interest rates.....
....recession....
...brown underpants....

kazd

meanmachine wrote: »

Do you actually have an original thought in your head, or do you only believe what estate agents tell you?

12 months ago the Nationwide insisted 2008 would see zero property inflation.

6 months ago they predicted falls of under 5%

Last month they were predicting falls of around 7/8% this year alone.

Next month, who knows what they'll say.

You do understand that banks and estate agents always talk up the market, no matter what, don't you, or are you just being trollishly naive?!!

Erm you do know Nationwide isn't a bank.

John_Pierpoint

Yes, and (nearly) every saver with Nationwide is a share holder.
This means there is not a cushion of investment from insurance companies etc to absorb losses before they impinge on the ordinary savers. Nationwide cannot pull the deep discounted rights issue trick nor can it sell a chunk of itself to Texas or a Sovereign Wealth Fund [Though Nationwide does issue debt traded on the stock exchange?]
Who polices "Nationwide" ? Are they asleep at the wheel, like FSA was last summer.
Perhaps some other clever person could come on here and compare "Nationwide's" accounts with those of a bank, say "Alliance & Leicester"?

I ask these questions for 3 reasons:
"Nationwide" is now so big that there are no other building societies that could begin to "rescue it".
I had a mortgage with "Leeds Permanent" - what ever happened to that major Building Society?
Last time round a property developer went bust - I'm only talking 7 figures - so a "one man and a few dogs" outfit & institutionally loose change. Guess who had financed him.
I AM NOT SUGGESTING THAT NATIONWIDE IS GOING BUST but it is not a simple equations of mutual = "good" V shareholders = "bad".
Mutual can mean run for the benefit of the directors eg "the good the bad & the ugly" = Equitable Life.

JayScottGreenspan

La_Contessa wrote: »

just out of interest, I just checked Nationwide's website and an article they have put together, and they insist that the interest rate will fall again, as the Bank of E. is under pressure due to the pressure on consumers. Also is there a general election due next year or year after, lets see Government tactics then..............they also say that consumers are in a much stronger position than they were in the early 90's regarding property, and that we are very capable of weathering this property storm, such as it is, and though house prices are or have fallen, A: it is only in certain areas (which was apparently backed up by Kirsty (of Kirsty & Phil on a morning show)) and and B: it has not been a significant drop to cause any real concern. Most will not be affected, in their words, by this drop, and shall remain unconcernd, unless under pressure to move or have borrowed to the hilt placing themselves in a difficult position and unable to keep on paying...... Not quite what we are hearing everytime we switch on the news... I thought that was quite interesting....:o

A good rule of thumb is never believe anyone who argues only in one direction - they clearly have a vested interest and can't be trusted.

A good example is the housing minister. Outwardly reassuring FTBs and encouraging them to take the plunge, whilst briefing her colleagues on how house prices are going to fall.

Regardless of whether you want house prices to go up or down, you should consider all the evidence.