BoE base rate rise?
Discussion
I have no expertise in these matters, but follow general fiscal and consumer finance patterns with interest (I was an advice service trustee for 10 years)...
Unless there is an unpredicted economic shock event, I really can't see Western central banks increasing rates much at all within the next 18-24 months, possibly a lot longer. There is too much debt of all varieties around, hence little leeway for interest rates to be used as a control and therefore too much of an incentive to inflate the "problem" away.
I expect the BoE intention is for a minor rate rise(s) to act a signal to restrain credit growth, but for other policies / tools to be used where traditionally interest rates would have sufficed.
On a personal level, I am using what I expect will (eventually) be seen as an extraordinarily low rates to over-pay and ultimately clear my mortgage and car-related debt.
Unless there is an unpredicted economic shock event, I really can't see Western central banks increasing rates much at all within the next 18-24 months, possibly a lot longer. There is too much debt of all varieties around, hence little leeway for interest rates to be used as a control and therefore too much of an incentive to inflate the "problem" away.
I expect the BoE intention is for a minor rate rise(s) to act a signal to restrain credit growth, but for other policies / tools to be used where traditionally interest rates would have sufficed.
On a personal level, I am using what I expect will (eventually) be seen as an extraordinarily low rates to over-pay and ultimately clear my mortgage and car-related debt.
Basil Hume said:
I have no expertise in these matters, but follow general fiscal and consumer finance patterns with interest (I was an advice service trustee for 10 years)...
Unless there is an unpredicted economic shock event, I really can't see Western central banks increasing rates much at all within the next 18-24 months, possibly a lot longer. There is too much debt of all varieties around, hence little leeway for interest rates to be used as a control and therefore too much of an incentive to inflate the "problem" away.
I expect the BoE intention is for a minor rate rise(s) to act a signal to restrain credit growth, but for other policies / tools to be used where traditionally interest rates would have sufficed.
On a personal level, I am using what I expect will (eventually) be seen as an extraordinarily low rates to over-pay and ultimately clear my mortgage and car-related debt.
I agree,I think there is fear around raising the rate and if they raise it .25% it's just a token gesture which won't really affect to many people badly but will give the impression that they are trying to stop inflation.Unless there is an unpredicted economic shock event, I really can't see Western central banks increasing rates much at all within the next 18-24 months, possibly a lot longer. There is too much debt of all varieties around, hence little leeway for interest rates to be used as a control and therefore too much of an incentive to inflate the "problem" away.
I expect the BoE intention is for a minor rate rise(s) to act a signal to restrain credit growth, but for other policies / tools to be used where traditionally interest rates would have sufficed.
On a personal level, I am using what I expect will (eventually) be seen as an extraordinarily low rates to over-pay and ultimately clear my mortgage and car-related debt.
It must be quite a conundrum for the BoE.
Raising base rates by the predicted amount, although it is a doubling, will remain at a very low historic level, therefore still encouraging more borrowing.
Raise rates too far, then presumably a huge number of people and businesses, will face problems meeting their debt servicing commitments.
Jon39 said:
It must be quite a conundrum for the BoE.
Raising base rates by the predicted amount, although it is a doubling, will remain at a very low historic level, therefore still encouraging more borrowing.
Raise rates too far, then presumably a huge number of people and businesses, will face problems meeting their debt servicing commitments.
Surely they must try to halt the rise in inflation and bring it back into line with what the government wants at below 2%.Raising base rates by the predicted amount, although it is a doubling, will remain at a very low historic level, therefore still encouraging more borrowing.
Raise rates too far, then presumably a huge number of people and businesses, will face problems meeting their debt servicing commitments.
Personally I would like to see base rate at 2% in 12 months and slowly heading to nearer 4%!
Interest rates have been at historic levels for nearly a decade to help the economy and all it has done is to increase personal debt at the detriment of savers.
Historically rates always go up quicker than they fall. So whilst I think we won't see more than a jump from 0.25-0.5% - lower tariffs post Brexit (despite what Project Fear predicts every other month) will stabilise prices to some extent - but we'll need to follow the US at some point.
I think a lot depends on inflation. Arguably the inflationary effect of the Brexit-related currency falls should have washed through the system by now but havent. If inflation stays much above 2.5% and seems persistent then the bank HAS to act - that is its mandate given to it by Gordon Brown all those years ago. If inflation comes down, there is no reason to do anything. I am personally rather pessimistic about inflation and reckon it will stay higher for longer. A combination of (a) higher inflation, (b) higher interest rates and (c) lower growth do not paint a pretty picture of the overall economy. Philip Hammond has absolutely no chance of balancing the budget any time soon....
williaa68 said:
I think a lot depends on inflation. Arguably the inflationary effect of the Brexit-related currency falls should have washed through the system by now but havent. If inflation stays much above 2.5% and seems persistent then the bank HAS to act - ..
The latest RPI (no one likes to talk about that measure of inflation) is 3.9%
30% higher than the CPI, twelve month figure.
As you say, the 2016 currency change is now beyond the 12 months, but many importers would have had forward currency hedging, so of course many would not have had to increase their prices immediately. I suppose it is probably the recent oil price rise, that now has a major influence on inflation. The BoE cannot do anything to control the world price of crude.
Edited by Jon39 on Wednesday 1st November 14:18
The justification for any rate rise right now is very weak.
Inflation is high due to increased import prices (exchange rate changes filtering through) and higher oil prices. The reason the Bank has a mandate to tackle inflation is because it's seen as a barometer for the health of the economy. However, at the moment, it is not.
Growth is low. Earnings are low. Productivity is low. Business and consumer confidence is low.
Employment is high but only because labour is cheap.
Inflation is high due to increased import prices (exchange rate changes filtering through) and higher oil prices. The reason the Bank has a mandate to tackle inflation is because it's seen as a barometer for the health of the economy. However, at the moment, it is not.
Growth is low. Earnings are low. Productivity is low. Business and consumer confidence is low.
Employment is high but only because labour is cheap.
mcbook said:
The justification for any rate rise right now is very weak.
Inflation is high due to increased import prices (exchange rate changes filtering through) and higher oil prices. The reason the Bank has a mandate to tackle inflation is because it's seen as a barometer for the health of the economy. However, at the moment, it is not.
Growth is low. Earnings are low. Productivity is low. Business and consumer confidence is low.
Employment is high but only because labour is cheap.
This: Carney's reasoning for a rate rise vs inflation is flawed - This inflation is not due to state of the internal UK economy but to the change in the value of the pound.Inflation is high due to increased import prices (exchange rate changes filtering through) and higher oil prices. The reason the Bank has a mandate to tackle inflation is because it's seen as a barometer for the health of the economy. However, at the moment, it is not.
Growth is low. Earnings are low. Productivity is low. Business and consumer confidence is low.
Employment is high but only because labour is cheap.
It won't have any meaningful effect on the value of the pound and therefore the reason for the actual inflation in the first place.
It may well have an effect on the state of the internal economy as consumer confidence is already low. i.e. a small rise puts the brakes on spending & borrowing.
The risk of a rise now is that this causes a reduction in spending larger than they anticipate. If it does, we may well see any increase in rates cut fairly swiftly.
My prediction is that it will rise but not for that long (<1 year) and will be cut back when consumer spending suffers.
fat80b said:
It won't have any meaningful effect on the value of the pound and therefore the reason for the actual inflation in the first place.
Not sure I agree with you there. A rate rise should encourage hot money flows into GBP and push it up.That's what traditional economic theory would imply, anyway.
BoRED S2upid said:
55palfers said:
MrOrange said:
Ah, but what will a 25bp rise in the base rate translate into the average mortgage? 0.5 or 0.75% increase?
I'll bet it won't translate that much on savings rates though.We must have a crystal ball....
Gassing Station | Finance | Top of Page | What's New | My Stuff