Interest rates hiked to highest level in 13 years
Against the backdrop of surging inflation and the threat of recession, the Bank of England has increased interest rates for the fourth consecutive time.
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How convenient to have the Ukraine war to blame.
Nothing to do with printing and dishing out free money for 2 years.
How convenient to have the Ukraine war to blame.
Nothing to do with printing and dishing out free money for 2 years.
Are you talking about the UK or the EU?
Bank of England (BoE) base rate should match inflation, or there's no incentive to save.
Borrowers are happy to keep things as they are, with lowest base rate ever.
That just keeps property prices high and locks first time buyers out of the housing market.
Something has to give - expect more base rate increases in the next few months.
Quite.
Although this may be "the highest interest rate level since 2009" (or to be more accurate the highest that bank rate has been since then ... take a look at https://www.bsa.org.uk/BSA/files/5c/5c180498-5e52-4a41-b022-5821c25f3cbd... (and weep if your memory doesn't stretch back that far).
Starting in 1939 and showing rates all the way up to 2009, you'll see the 'typical' rate was 5% (with frequent peaks around 15%).
You'll also see a correlation between 'runaway' property prices and ludicrously low bank rates ... but that's another story.
About time too, but I agree with Rishi more needs to be done. No sensible economy should have a base rate below 2%.
Raising interest rates to stop inflation caused by imported gas prices that we have no control over. Makes perfect sense.
Phil, I agree - the irony is obviously lost on those in charge of our economy. This will put mortgage rates up and may I suppose reduce house prices? or at least they won't keep going up at the same rate?
Labour peer Prem Sikka said' the current inflation is “inflation caused by corporate profiteering not excessive household purchasing power”. And he's a Professor of Accountancy.....
With people like him teaching students it's little wonder graduates aren't highly valued any more.
Someone needs to point out why the current bout of inflation is happening which is sod all to do with 'corporate profiteering' (makes it sound like he thinks companies shouldn't make any profits) and much more to do with huge supply chain issues, Covid effects and now a small war in Europe which he might have not noticed, being hidden in his ivory tower being paid very well and stacking up a massive pension....
He's probably one of those in Labour advocating a 'windfall' tax on oil and gas companies like BP, who lost around 20bn last quarter, ignoring the fact those companies already pay higher taxes anyway.
Richard Murphy fails to explain where the additional taxes should then come from- should we borrow even more? The UK economy is in its worst state since 2008, at least- he says. Let's ignore unemployment being around 4% then and a tight labour market.
It's easy to criticise but much harder to come up with workable solutions. Does he have any?
1% rate isn't high, it's just that people have become used to very cheap money. It's high time rates moved back to more sustainable levels.
They also seem to fail to consider the adverse impact on the exchange rate of not moving rates.
This gentleman has always had his own agendas so best to take anything he says with a large pinch of salt. Mind you that can be said for most of the "experts" who are commenting on this change of interest rates. Most of the comments are political at best.
When I look at my savings placing them in an account giving me 1% isn't going to make me rich so implying that interest rates of 1% is "hiked" leaves me thinking this headline is more for click bait rather than reality.
What a load of guff. Interest rates have been far too low for far too long and that, as well as money printing and extreme Gvt borrowing, is one of the main causes of high inflation and inflated asset prices and that in turn has caused wealth inequality to increase big time over the past 10 years*.
*I could not believe how much my defined contribution global growth fund pension has gone up this year when I saw the latest statement yesterday. A 20% annual increase, all thanks to low interest rates.
Not for the first time Richard Murphy and Prem Sikka demonstrate their misunderstanding of the position. We have a clear demonstration of excess demand in the economy and a shortage of both staff and materials to boost supply. Just look at the adverts in every restaurant for staff. Shortages of new cars is driving up the price of second hand cars. That is what drives up inflation, not interest rates, quite the reverse.
Interest rates have been too low for far too long. The longer this inflation is left untreated the harder it is to contain. I also suggest that they take some time to read the wise words of a the expert economist Tim Congdon.
I also suggest they take more note of the late great Denis Turner, chief economist at HSBC, who said that getting a bit of inflation is like getting a little bit pregnant!
Mike
Careful now, you're surely not suggesting that Denis Turner thought of pregnancy as a binary condition? :=)
Anyway, you're quite correct that higher interest rates only drive up inflation where the bulk of purchases are paid for via borrowing ... which is why we're now in this position (not just Rishi's largesse but all the Q.E. from Gordon Brown onwards).
Thanks for the response.
Denis Turner was one of the best speakers I have ever heard. So well informed and entertaining. It is a tragedy they he died far too young. I invited him to speak at our seminars several times and met him by chance on holiday in Beer shortly before he died.
Mike
Base rate increases to 1%. On the same day, BoE predict inflation to hit 10% later this year. Yet Aweb appear to think a measly 1% base rate (an order of magnitude lower than the above inflation rate) is the bigger or more relevant story. Go figure.
Oh look, unsurprisingly UK house prices are at another record high per my above asset inflation point.
https://www.bbc.co.uk/news/business-61337763
A 1% base rate obviously ain't gonna make any difference there.
one of the wealthiest economies in the world, and some seem to be advocating a return to the 'good' old days of high interest rates because they had to pay it.... what an odd 'progressive' society we live in......
"some seem to be advocating a return to the 'good' old days of high interest rates".
Really? Can you indicate who & where that has been advocated on this thread?
A warning to those (like you?) that have never experienced higher interest rates is a valid wake-up call to be prepared for far worse ... so that you may be able to take appropriate actions in advance.
Do you think it's likely that 1% will be the peak? And do you not think that 'cheap money' is the root cause of massively inflated house prices?
The problem isn't cheap money.....the problem is the businesses wishing to hand it out (see 2008). The bankers didn't pay the price for their bad practices, instead they were rewarded with government handouts and the greenlight to continue.....so the little people pay the price.
I see you ignored the opportunity to reply to:
"Can you indicate who & where (a return to the 'good' old days of high interest rates) has been advocated on this thread?"
But, although the causes of any economic change are never attributable to just one action, you're on your own if you believe there's not high correlation between cheap borrowing and rapid house price increases. And, of course, expensive borrowing leading to stagnation (or even negative equity) in the housing market.
Leaving aside inflation, inflated house prices are mainly caused by interest rates being too low for too long and that's caused the UK wealth divide to increase massively this past decade. For example, only if you have rich parents or a very high paid job can you now afford a nice detached house in London or the South East (30 years ago that was not the case). You are considering only the winners of low interest rates.
Whilst interest rates are one part of the house pricing situation, generous lending by banks imho is far more important than interest rates. If one observed what happened post 2008 ,when banks curtailed their previous lending practices, one got a sense of how much supply of lending rather than cost of borrowing drove prices.
And for those that think higher rates give the FTB a better chance, not sure, there are funds available in the marketplace which will start purchasing residential if prices drop and they can blow the FTB out of the market; right now we sit with a fair few £millions of property with no borrowings and £1.5m sitting in the bank, a fair treasury of latent purchasing power and there are lots like us, drop residential prices and we, like many other professional investors, will hoover up any cheaper property offerings to the detriment of the FTB and of course the available supply of properties into the market will also likely get further squeezed (up here it is already tight with far fewer say Rightmove listings than in years gone by)
The catch with economics is there are a lot of moving parts , not all timely, and not all thoroughly predictable. but what is clear is those with funds and access to funds prosper and those constrained , like FTBs, do not.