Bank of England bucks rate-rise streak again
After the Bank of England's announcement today interest rates remain at their highest point since 2008 as inflation remains stubbornly high at 6.7%. However, experts are questioning whether the central bank has "wildly over-reacted" to inflation?
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Yep - anyone who canot see that ridiculously high interest rates for anything other than short period of time are fueling the inflationary fire here rather than helping is a fool.
'ridiculously high'? Might want to take a look over the last fifty years:
Interest Rate in the United Kingdom averaged 7.11 percent from 1971 until 2023.
It's just the younger generation that have been used to near zero rates that find below average rates 'ridiculously' high...
I dislike this generational comparison.
Younger people, and younger businesses importantly, are used to lower interest rates because for them that has been the norm. Any change to the norm is going to be disruptive.
Just because things were different 'back then' doesn't mean that the current position isn't causing huge distress and economic damage.
The past is not a gauge for future performance, nor should the pain or discomfort of the past be used as an excuse for pain or discomfort today. A lot more people used to die of poor healthcare, should we use this as an excuse to argue against those calling out falling standards in modern healthcare?
I've never understood why people take some form of satisfaction in highlighting that things used to be worse, so people shouldn't complain or aspire for better.
I think the comments made by Ian McTernan CTA are factually correct.
The economy moves in cycles. Averages take account of high and low rates. His statement reminds us of the average rates of our life time.
I appreciate that some people (aka 'youngsters') who have seen interest rates on the floor at rock bottom rates for many years have not experienced the average rates we are now experiencing. I do feel for these youngsters through!
It is wrong though to jump on the back of Ian McTernan CTA for making a perfectly correct, and non-agest' statement about histrorical average rates.
I do not believe in averages cos they are totally meaningless.
One person is 6 foot tall another is 3 foot, so the average is 4.5 feet.
Sorry Ian but your figures are meaningless but I do know the point you were trying to make.
I always love it when "they" come out with what the average wage is.
I think interest rates should only be reduced once inflation starts to near the 5% range. Painful though
"Remains stubbornly high"
It's almost as if BoE interest rates have nothing to do Cost-Push Inflation and they've unnecessarily cost hundreds of thousands of people thousands of pounds whilst helping push us into a recession.
A better analysis of things is here: https://www.dailymail.co.uk/debate/article-12681499/ANDREW-NEIL-era-chea...
Governments and Central Banks have no control over interest rates while things are dictated to them by the global bond markets.
RM clearly doesn't understand this basic stuff. For example, if BoE base rates were reduced to 2%, everyone (including RM unless he's a complete idiot) would take out a huge mortgage to invest in 5-10 year 5% risk-free gilts. But efficient financial markets don't allow that kind of risk-free profitable trade in the first place.
Rates should never have been increased.
If the purpose of rate increases is to crush credit growth (and hence MS) then just implement a credit ceiling.
Rate increases are a "hand wavy" way to control credit growth. It will work, eventually, but by then you've likely overshot.
A hard credit ceiling tells you *exactly* what your credit growth will be.
No guessing, no excessive profits for the banking industry and no increase in the debt interest repayment (which is currently 47% of our deficit!!).
But the banks don't like credit ceilings so that won't happen.
The interest rate is really determined by the coupon on the worthless UK "gilts" (except Gordon The Moron sold all the gilt..) they cannot stop printing.
Like a kid that blows its credit card balance the first day it receives the shiny plastic thing.
Let the free market determine the interest rate on proper commercial loans, not some faceless bureaucrats who cannot have perfect market knowledge. Those closer to the coal face have less imperfect knowledge.
Mortgage rates are still coming down (swap rates) albeit it slowly and I think after Christmas we will see inflation and bank rate reducing. Of course while outside influences are allowed to control our interest rates then we will always have these hiccups.
off course mortgage interest rates will remain high (6-9%)for the foreseeable.
My building society is offering savers 5% for 5 years locked in, if the nationwide reduced their mortgage rates to less than 5% they would go bust, they may also go bust if they charged borrowers less than 7 % taking expenses into account.
"My building society is offering savers 5% for 5 years locked in, if the nationwide reduced their mortgage rates to less than 5% they would go bust,"
Huh - whenever mortgage rates go down savings rates go down too - its that simple no one goes bust savers just get lower rates.
Yes I agree, but Nationwide had guaranteed 5% interest on savings for 5 years, if it was taken up big time, The nationwide have very little wiggle room to reduce interest rates to lenders for at least 5 years.
That's not the way these things work. The Nationwide will place that in the market much the same as a mortgage book works: funds are borrowed to a certain amount then lent out, no risk really other than default.
The nationwide have very little wiggle room to reduce interest rates to lenders for at least 5 years.
Thats plain wrong - as Ian McTernan CTA has advised the banks dont take the future risk they will have all these items hedged (or similar) as appropriate so the future change in rates makes no difference practicably speaking . The flip side is true in that they dont benefit with rates go the other way.
Just idle curiosity where do you think mortgage rates will be in 5 years time, currently around 5.5% - 6.5 %.
I say no change, come back in 5 years and mortgage rates will be from 5.5% to 6.5%, but what do I know.
long term no one knows we are only guessing
i just default to when inflation is low one should expect mortgage rates to be low ? not sure if you agree with that?
per comments below inflation is expected to drop back down within next 6 montths and that forms my basis for exepcting rates to be lower - if inflation is half what it is now in 9 months. IMHO if we clearly expect inflation to drop back i dont even think we need high interest rates now as to me that is forcing peeps to up income/prices(landlords) where they can.
note the current median economoic forecasts for headline cpi show that by q1 next year they expect inflation to be back below 3% trending downwards. We are lagging the us and some others where inlfation is already trending back to these levels.
So if we say inflation will be back to 2 to 2.5% rate and stay there by March next year would you not expect mortgage rtaes to get back to something materially below where they are now. Big difference between where inlfation is now and where it is expoected to be.
Obviously its all guesswork here i would say my prediction of anything is more likely to be right than anyone else's but looking outside our own temporary bubble i dont think the world needs inflation - you do deals by beating others on price.
We are entering a globally synchronised recession.
Every macro economic indicator is negative. The NTFS, 3mth Euribor futures, Chinese PMIs, European PMIs, West Texas inventory, hours worked, total compensation, fixed & revolving credit, every single yield curve is inverted.
"Higher for longer" is central bank BS.
We'll be back at zero within 12 months.
Bonds at 5% are a really good buy right now.
I was in cash but have gone all in on TLT (US 20yr Treasuries ETF).
Up 5% in one week.
Sorry its 4.6 % now no longer 5%
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Bank of England need to do something different to the old fashion traditional approach. They cannot continue punishing us. Given few months a different problem will arise due to business failures and redundancies. Then unemployment and recession. Then the government gets involved in cutting public resources. Where is the bance? No one knows.
There isn't a balance anymore. The status quo has gone and lockdown is definately to blame. However, (I've said this before) you had to weigh up saving of lives v economic chaos. I'm really interested in the outcome of the covid enquiry because that will highlight the differences and who wanted to go which way.
Stamp Duty Holiday - Absolutely barmy
Furlough - Absolutely barmy, basically a year long holiday for a huge amount of the country resulting in zero productivity.
GOVERNMENT BACKED Bounceback Loans - Absolutely barmy, should have had banks taking the hit, restrict the interest they can charge but bring into play personal assets of the directors as collateral, if there wasn't any then no loan.
PPE Fraud - Rampant
In my view there is no reason they couldn't say -
"Under 45, off you go to work, you aren't allowed to see anyone above the age of 50"
The amount of U45s "clogging" up beds was miniscule, I would have also relaxed the rules surrounding maximum hours whilst on benefits for the U30s to try and mobilise the lazy ones into work and try to keep them there.
Sounds logical to me. I'm not sure how much Government new about covid when they announced the first lockdown. Certainly your plan could have worked well instead of the second lockdown because by then we new that covid was mainly hitting the elderly with problems. We also new that the virus was clotting blood and giving breathing problems.
By the way you forgot the millions spent on renting the 7 nightingale hospitals with a very small admission rate.
You can't buck the market , these rates are sensibly here for the long run ...in which we are all dead
So you've found an 'expert' (an accountant) who is not keen on high interest rates. There are a lot of economists with a huge variety of views; there was (is?)even, briefly, Trussonomics. There are also probably a lot of accountants with a huge variety of views. Inflation needs controlling (is that now in dispute?). Having over-borrowed clients should not incline us to support them financially.
We got cut off from China & the East.
Prices went up.
We got reconnected.
Prices went down.
The BOE could have left rates alone and everything would have happened just the way it happened.
The UK can have no effect on global supply chains.
What we do doesn't matter.
An extreme take on the situation. You appear to think inflation cannot be controlled and that all UK economic planning is a waste of time. Clearly a Trussonomics fan. Good luck with that.
Cost push inflation caused by disruption in the global supply chain cannot be controlled with the policy rate.
How much of Chinas trade is with the UK?
Do think they'll drop prices if *shock* UK demand goes down by 4%?
Or 10% or 20%?
No. We don't matter.
They'll hold their prices where they are until world demand falls.
Increasing the UK interest rate is pointless fiscal waterboarding that only enriches the banks.