Are we in danger of not increasing interest rates BIG style?

[Phooey]

I can’t get my head around both the housing and car market at the moment. Can probably add stocks into the mix too. Is the main issue interest rates and are we kicking the can down the road keeping them so low? Appreciate this has probably been discussed a zillion times but I’ve watched both markets for the past year and I cringe at the amount of (borrowed) money changing hands. I’ve also grown up seeing folk earn respectable interest from money in the bank. What’s the point of having a million quid in the bank today. It’s all out of sync.

[vulture1]

I keep a bare minimum (car needs £1000 fix) type fund in the bank account and thats it. Everything else in a stocks and share Isa. Can sell any share instantly and get the cash into an account within 3 days.

We stil live in a 1 upmanship country so everyone wants newer cars and can't get them so prices rise.

Rates rise would effect the governments borrowing as well as everyone living on credit and store cards.

[jeff m]

I can think of a few reasons I'd like a million quid in the bank: D ( as long as i had five in the market)

Car prices are up because of the semiconductor shortage. Unrelated.

I doubt we will see rapid int rate increases, two half percentages would be massive from where we are now. A quarter now with another in the Spring would perhaps be all that is needed.

Any way I thought the UK Gove uses it's tax system as a weapon to keep a lid on inflation, not the bank rate. :

The September CPI will tell !

[The Leaper]

Yesterday the Gov of the BoE said that interest rates will rise in 2022. He did not say by how much, though.

R

[LooneyTunes]

Phooey said:

I can’t get my head around both the housing and car market at the moment. Can probably add stocks into the mix too. Is the main issue interest rates and are we kicking the can down the road keeping them so low? Appreciate this has probably been discussed a zillion times but I’ve watched both markets for the past year and I cringe at the amount of (borrowed) money changing hands. I’ve also grown up seeing folk earn respectable interest from money in the bank. What’s the point of having a million quid in the bank today. It’s all out of sync.

It’s not just personal borrowing. Governments globally have created huge amounts of money to deal with the pandemic. You can’t inject the sums that have been created without there being side effects.

Like you I remember the days of attractive interest rates, but then the ongoing decreases took hold. Even the drops over the past few years have been painful, especially if retired and expecting to live off the interest. There used to be fairly regular tweaking of rates, even if the trend was generally downwards.

Now they’ve been so low for so long that interest rates appear broken/unavailable as a tool to meaningfully control inflation. Raise them enough to have a meaningful effect and large numbers of individuals (and businesses) will experience major pain. That’s politically challenging to say the least as no government (especially one encouraging home ownership) is going to want to return to the days of negative equity, repossessions etc.

There may be some increases to interest rates but there won’t be BIG ones any time soon.

That makes thing difficult with upward pressure on prices of goods (not just houses and cars!) and services and also upward pressure on wages, especially trades, lower skilled, and entry level jobs as a result of COVID/brexit. It is hard to see how there won’t be some degree of ripple effect and inflation running above recent historic levels.

Let’s not forget that a bit of inflation isn’t bad if you have a pile of debt that isn’t inflation linked, or that inflation concerns and low (even negative) interest rates aren’t just limited to the UK.

[deuchars]

The majority of the central banks publish their short-term projections, its worth having a look at the BoE latest report.

[Scootersp]

LooneyTunes said:

It’s not just personal borrowing. Governments globally have created huge amounts of money to deal with the pandemic. You can’t inject the sums that have been created without there being side effects.

Agreed, raising rates will kill economies and be political suicide and countries won't be able to service the debt ie default?

Inflation stated as "transitory" but probably won't be, reported inflation lower than reality so gradually we get impoverished as the day to day essentials rise.

Inflating the debt away seems (to those in power) to be the least of the bad choices?

It's probably not a great choice (as posting stuff has declined in volume no doubt) but a 30p stamp in 2005 would today be approx 43p if risen by the official UK (Jan) inflation rates, while it's 85p (which is over 6.5% every year since 2005?

First Iphone $499 latest $1000+? at published inflation rates since 2007 should be approx $700 obviously you get more in the new one, it's a far better product but it's still that the price of having a phone is increasing above the published rates ie in real terms more expensive than it was.

Low official rates keep government related raises lower, so if inflation is running higher it hits people directly. Sustained and/or high inflation is bad news.

If we could just print money and have infinite debt then why do we even pay taxes!?

I don't know exactly what will happen going forward but I'm not hugely optimistic it's going to be easy/painless.

[P-Jay]

Phooey said:

I can’t get my head around both the housing and car market at the moment. Can probably add stocks into the mix too. Is the main issue interest rates and are we kicking the can down the road keeping them so low? Appreciate this has probably been discussed a zillion times but I’ve watched both markets for the past year and I cringe at the amount of (borrowed) money changing hands. I’ve also grown up seeing folk earn respectable interest from money in the bank. What’s the point of having a million quid in the bank today. It’s all out of sync.

I don't think it's a case that a) Inflation of all types is always a sign of a bubble market b) the only fix it to raise interest rates.

There are reasons why we're seeing price rises across so many sectors and I don't think "money is cheap" is at the core of any of them and meaningfully reducing consumer spending will do more harm to the economy. We currently have 1m people still on Furlough, who may be unemployed tomorrow and the Chancellor is going further into our pockets next year with the NI rise, it's going to be a rough ride for a lot of people for the next 6 months.

That's not to say they won't rise, I mean they have to, but it will be a slow process and even when they do, it won't be to the levels of the 80s or even the mid 2000s. Mark Carney (who obviously left BOE last year) hinted that post Credit Crunch / Great Recession that 'the new normal' was probably 3% to 3.5%

[BoRED S2upid]

The Leaper said:

Yesterday the Gov of the BoE said that interest rates will rise in 2022. He did not say by how much, though.

R

I imagine a tiny fraction of a percent.

It’s a ticking time bomb. Everyone is loaded up with debt they can’t increase it too much too soon. They probably need to and should have done so years ago. Mortgages under 1% is crazy.

[P-Jay]

BoRED S2upid said:

The Leaper said:

Yesterday the Gov of the BoE said that interest rates will rise in 2022. He did not say by how much, though.

R

I imagine a tiny fraction of a percent.

It’s a ticking time bomb. Everyone is loaded up with debt they can’t increase it too much too soon. They probably need to and should have done so years ago. Mortgages under 1% is crazy.

It 'shouldn't' be. Back in the mid-2000s when I was working at RBS and underwriting was a big part of my role, frankly the writing was on the wall. If it wasn't the US Sub-Prime causing the credit crunch, the economy was just waiting for another final straw to cause a massive crash. 100% or higher mortgages with almost zero underwriting, Credit Card companies going absolutely wild with limits without even checking what balances their customer had with others, HP deals on cars with massive balloon payments that weren't guaranteed and seemingly every man and his dog thinking their rich because their house was earning more a year than they did.

The difference post-crash was affordability checks, they're more important these days than basic CRA checks, because we learnt to our peril that most people will pay their bills on time, right up to the point they realise they can't and it all comes crashing down.

In theory, no one should be able to borrow more than they can actually afford and their are processes in place to protect those who suffer a 'significant change of circumstances' like redundancy or the loss of a partner etc. Total credit card debt amongst Britons is actually falling fairly rapidly, 8.7% 2020 to 2021.