The Bank Of England Clueless Thread

[hi5lo5]

http://uk.businessinsider.com/bank-of-england-december-interest-rate-decision-and-minutes-2016-12

 

9-0 That's insane. 

[canbuywontbuy]

"Robust economy....low unemployment....growing GDP...."

All is well.  Why ever didn't we think of ZIRP before?!!

[zugzwang]

20 minutes ago, hi5lo5 said:

http://uk.businessinsider.com/bank-of-england-december-interest-rate-decision-and-minutes-2016-12

 

9-0 That's insane. 

Vigilant.

[Errol]

9-0. Nobody has any dissenting view or thinks differently? Apparently they are just 9 people in a room who all essentially think the same way and follow the same ideas?

[darkmarket]

33 minutes ago, Errol said:

9-0. Nobody has any dissenting view or thinks differently? Apparently they are just 9 people in a room who all essentially think the same way and follow the same ideas?

I'd have been very surprised if anyone were to recommend increasing rates in the current circumstances, there's been no data in the past month indicating a change was likely.

I'm more surprised at the unanimity around continued QE, especially in the smaller corporate bonds allocation. That could be challenged before rates.

[Will!]

12 minutes ago, darkmarket said:

I'm more surprised at the unanimity around continued QE, especially in the smaller corporate bonds allocation. That could be challenged before rates.

Years ago, Carney did say (I think before the House of Lords Economic Affairs Committee, but may have been the House of Commons Treasury Select Committee) that when the time came to tighten monetary policy he would raise rates before unwinding QE because he thought the effects would be more predictable.  That was all hypothetical, of course. 

Edited December 15, 2016 by Will!

[Errol]

36 minutes ago, darkmarket said:

I'd have been very surprised if anyone were to recommend increasing rates in the current circumstances, there's been no data in the past month indicating a change was likely.

'data' 

 

[darkmarket]

1 hour ago, Will! said:

Years ago, Carney did say (I think before the House of Lords Economic Affairs Committee, but may have been the House of Commons Treasury Select Committee) that when the time came to tighten monetary policy he would raise rates before unwinding QE because he thought the effects would be more predictable.  That was all hypothetical, of course. 

That would make sense, there does some to be an irrationality about the market response to any reduction in QE in the Eurozone, for example, that must be hard to quantify. My thinking was based partly on the perception of inequality created by QE, partly its efficacy, and partly the apparently growing likelihood of some kind of fiscal stimulus approach.

In any case, not much of interest in today's statement.

[simon99]

1 hour ago, darkmarket said:

That would make sense, there does some to be an irrationality about the market response to any reduction in QE in the Eurozone, for example, that must be hard to quantify. My thinking was based partly on the perception of inequality created by QE, partly its efficacy, and partly the apparently growing likelihood of some kind of fiscal stimulus approach.

In any case, not much of interest in today's statement.

I'll believe they'll reverse QE when I see it. I remember them saying it would need to be reversed at some point when they first started it when people we're airing concerns about QE, but we're nearly 10 years on and there is no sign of it. My guess is they will reverse it once inflation makes reversing that amount of money a lot less painful, i.e. many years away.

[Noallegiance]

QE can't be stopped without exposing it's true affect, i.e. overdosing the planet on nonexistent money that's obscured the true value of everything.

So, it won't be stopped.

[darkmarket]

2 hours ago, simon99 said:

My guess is they will reverse it once inflation makes reversing that amount of money a lot less painful, i.e. many years away.

Agreed there's no chance of it without inflation. I'm expecting that to be imported on the back of someone else's stimulus plans before any comes from the UK domestic economy, and add to that Carney's looking through period, so difficult to judge a timescale at the moment. Things are slowly moving in the right direction though, and with the tax changes etc already introduced it looks like there's already a squeeze out the rapidly shrinking door.

[simon99]

2 hours ago, Noallegiance said:

40 minutes ago, darkmarket said:

Agreed there's no chance of it without inflation. I'm expecting that to be imported on the back of someone else's stimulus plans before any comes from the UK domestic economy, and add to that Carney's looking through period, so difficult to judge a timescale at the moment. Things are slowly moving in the right direction though, and with the tax changes etc already introduced it looks like there's already a squeeze out the rapidly shrinking door.

It's the fact that when QE was started, the fears of printing money were allayed by saying it would be reversed, like it would be a short term temporary measure. Yet there is still no sign of it almost 10 years on.

 

[simon99]

Just now, simon99 said:

 

This Quote feature is hopeless, I can't make head nor tail of it, my last post came out totally wrong. I said "It's the fact that when QE was started, the fears of printing money were allayed by saying it would be reversed, like it would be a short term temporary measure. Yet there is still no sign of it almost 10 years on. "

[zugzwang]

34 minutes ago, darkmarket said:

Agreed there's no chance of it without inflation. I'm expecting that to be imported on the back of someone else's stimulus plans before any comes from the UK domestic economy, and add to that Carney's looking through period, so difficult to judge a timescale at the moment. Things are slowly moving in the right direction though, and with the tax changes etc already introduced it looks like there's already a squeeze out the rapidly shrinking door.

Carney's difficult 'looking through' period.

Can't say when it will end but I've a good idea what the consequences will be.

[darkmarket]

17 minutes ago, simon99 said:

It's the fact that when QE was started, the fears of printing money were allayed by saying it would be reversed, like it would be a short term temporary measure. Yet there is still no sign of it almost 10 years on.

I'd like to know what really was the expectation when it was first introduced, but I doubt we ever will. I've enjoyed all the discussion around ending though, throughout the national media. Relentless.

 

20 minutes ago, zugzwang said:

Carney's difficult 'looking through' period.

Can't say when it will end but I've a good idea what the consequences will be.

It feels a bit like this too:

[thisisthisitmaybe]

The only reason central banks have been able to get away with QE is because we are in a debt-deflation cycle (emphasis on deflation).

It's actually a toxic combination, as QE feeds asset bubbles like housing which create massive social division between the haves and the have-nots (increasingly the old vs the young).

The only thing which will stop the madness is if inflation returns (which I still don't see happening given the overcapacity in the economy) or some kind of social conflict which forces political change on central bank policy. 

I'm sorry to disappoint the posters on here, but a house price crash is virtually impossible, as interest rates will remain at historic lows, QE will be ramped up, and we will remain in a deflationary environment for many years yet. The situation is completely different from the early 90s, and I think a lot of posters are biased because of their experience of that period. This time really is different (unfortunately).

 

[darkmarket]

3 hours ago, thisisthisitmaybe said:

The only thing which will stop the madness is if inflation returns (which I still don't see happening given the overcapacity in the economy) or some kind of social conflict which forces political change on central bank policy. 

I'm sorry to disappoint the posters on here, but a house price crash is virtually impossible, as interest rates will remain at historic lows, QE will be ramped up, and we will remain in a deflationary environment for many years yet.

Obviously a rise in interest rates would be the quickest trigger, but it's not as simple as you suggest.

Firstly, the regulations on BTL currently being introduced alongside the forthcoming Basel requirements on lenders will have a dramatic effect on the demand and supply sides of the market.

Secondly, the rates set by the BoE are important, but they don't determine mortgage rates alone. We're just seeing how a rise in fixes of 1-2% in the US has cut mortgage applications to warning levels. And that happened before the Fed intervention. Increases in swap rates in the UK suggest this trend is beginning here and HSBC has already risen lending rates in response.

Thirdly, inflation in the UK doesn't only depend on the UK economy. The worst-case scenario, which is exactly what is unfolding, is that Carney's inability to raise rates leaves the pound vulnerable to attack. That in turn leads to imported inflation. It's that imported inflation and the absence of the possibility of monetary policy and fiscal responses that are the biggest threat to the economy now.

It's not a simple equation of waiting for the economy to grow to levels where inflation requires a rate hike. It's that the economy is so vulnerable it can't protect itself from any change in outside influences. London claimed to invincible because it was a global city, and the UK strong because it was a global economy. Neither are true when 5% interest means failure.

[thisisthisitmaybe]

2 minutes ago, darkmarket said:

Obviously a rise in interest rates would be the quickest trigger, but it's not as simple as you suggest.

Firstly, the regulations on BTL currently being introduced alongside the forthcoming Basel requirements on lenders will have a dramatic effect on the demand and supply sides of the market.

Secondly, the rates set by the BoE are important, but they don't determine mortgage rates alone. We're just seeing how a rise in fixes of 1-2% in the US has cut mortgage applications to warning levels. And that happened before the Fed intervention. Increases in swap rates in the UK suggest this trend is beginning here and HSBC has already risen lending rates in response.

Thirdly, inflation in the UK doesn't only depend on the UK economy. The worst-case scenario, which is exactly what is unfolding, is that Carney's inability to raise rates leaves the pound vulnerable to attack. That in turn leads to imported inflation. It's that imported inflation and the absence of the possibility of monetary policy and fiscal responses that are the biggest threat to the economy now.

It's not a simple equation of waiting for the economy to grow to levels where inflation requires a rate hike. It's that the economy is so vulnerable it can't protect itself from any change in outside influences. London claimed to invincible because it was a global city, and the UK strong because it was a global economy. Neither are true when 5% interest means failure.

As somebody praying for a HPC (I am praying for some inflation) I hope very much that you are right. And thank you for your detailed response.

BTL may well be a fool's game now, although I wouldn't rule out the government backtracking on new BTL policy if they think they might be held culpable for a HPC. And recent form shows the gov will backtrack.

The Fed and the B of E have only raised rates twice in the last 8 years (or something like that). Their instinct is to lower rates whenever there are signs of trouble. Again, no government wants a HPC on its hands, so there will be pressure on central banks to lower rates if prices start tumbling. Negative rates are probably on the cards.

Deflation is now a global phenomenon. We are importing deflation, as there is so much excess capacity in the global economy. I think an attack on the pound to be unlikely, it is fairly valued now, whereas pre-Brexit it was far too high.

I think the best we can wish for is a tailing off in house prices. As long as 1) deflation rules the global economy, and 2) we have self-serving cretins in government and the central banks, the chances of a house price crash are very slim. I'd love to be proved otherwise and value all the responses on here. 

 

[jiltedjen]

Will BTL selling up there will be a flood of houses at the bottom end of the market. 

Bottom end end of the market will fall 20-30% easily

trapping all recent FTB from accessing the next 'step' so to speak. 

the middle market is going to get much better value. especially with many BTL forces to sell their own family homes also.

[frederico]

From https://www.cml.org.uk/news/news-and-views/market-commentary-2017-and-2018-forecasts/

Quote

There is a large degree of uncertainty in how landlords react to the income tax changes; research commissioned by the CML shows only half of buy-to-let landlords surveyed felt they had at least a fairly good understanding of these changes. We expect limited or slower growth in landlord’s portfolios but will ultimately need to wait until the changes are in place to get a better idea of the cumulative impact on the sector.

Quote

The underlying picture for possessions still shows the number of cases falling, but as with our arrears forecast, we expect some deterioration in 2017 and 2018. The reason for this is a legal case that has somewhat distorted the headline figure for 2015 and 2016, meaning some possession actions were put on hold until regulatory uncertainty had been resolved.

We now expect this to unwind in 2017 and 2018, which is reflected in our forecasts.

Overall, we still expect the majority of borrowers to cope with a harsher economic condition from next year, resulting in forecast figures which still look favourable compared to the recent past.

Quote

Conclusion

Our forecasts are more pessimistic than a year ago, partly as a result of economic uncertainty, but also because of tax and regulatory changes in the housing and mortgage market. Having said this, the housing market is relatively well insulated from Brexit, compared with other parts of the economy, as most activity is driven domestically.

We expect property transactions to remain subdued going forward but, given strong demand for housing, we still do not expect to see national house price falls over the next two years.

The trajectory for buy-to-let is weaker than we expected a year ago, with stamp duty and regulatory changes both weighing on activity. Our forecasts imply 2015 was the peak for buy-to-let house purchase activity, with 2016 to 2018 all being weaker.

On arrears and possessions, we expect a limited deterioration in the underlying figures, as most borrowers cope with harsher economic conditions from next year, resulting in forecast figures which still look favourable compared to the recent past

Hmm so demand exceeds supply and this means prices will go up for ever.

People's finances are OK, they can spend spend spend.

BTL will be weaker.

I see a crisis ahead this report is crazily optimistic and has very little evidence of actual sums.

[darkmarket]

55 minutes ago, thisisthisitmaybe said:

BTL may well be a fool's game now, although I wouldn't rule out the government backtracking on new BTL policy if they think they might be held culpable for a HPC. And recent form shows the gov will backtrack.

This is a misunderstanding of who's leading the adjustments to incentives around BTL. It's not just a government matter, it's primarily a BoE matter. That's why George Osborne agreed to hand greater powers over the matter to the Bank, which they now hold in reserve to add to the measures already announced, and that's why if the Treasury yields to the arguments of the BTL minority their influence will be countered by the BoE. And the underlying reason is the Bank controls the precarious balancing act between inflating asset bubbles via QE, and restricting the formation of systemic risks. The housing market is a systemic risk, and the recent innovation of BTL is a means of controlling that risk, at the greater risk of upsetting the wider balance.

1 hour ago, thisisthisitmaybe said:

The Fed and the B of E have only raised rates twice in the last 8 years (or something like that). Their instinct is to lower rates whenever there are signs of trouble. Again, no government wants a HPC on its hands, so there will be pressure on central banks to lower rates if prices start tumbling. Negative rates are probably on the cards.

Carney has come out time and again against negative rates. They don't work, have been proven not to work, have no foundation in economics and won't be introduced in the UK. The conditions that would allow for their effective introduction are the abolishment of cash, the commercial banking sector and introduction of direct consumer and business banking with the central bank based on digital currency. That's an ideological move too far, never mind the timeframe.

Low rates are a reflection of a problem. The US is moving beyond that stage, due to artificial stimulus. When the US exports inflation or crisis to a degree that creates crisis in another economy, the primary beneficiary is the US economy. See the actions of Cerberus mentioned in another thread. The US has a vested interest in being strong while other economies are fragile, and that's increasingly the case.

1 hour ago, thisisthisitmaybe said:

Deflation is now a global phenomenon. We are importing deflation, as there is so much excess capacity in the global economy. I think an attack on the pound to be unlikely, it is fairly valued now, whereas pre-Brexit it was far too high.

Deflation is not a global phenomenon, stagflation is and currency performances vary enormously. The drop in Sterling hasn't priced in leaving the EU and failing to achieve comparable trade agreements. It has further to fall against the dollar, and ground to make up on the Euro, which is under even more pressure. We're seeing inflation but in the form of asset bubbles which do little positive for the underlying economy but carry huge systemic risk.

1 hour ago, thisisthisitmaybe said:

I think the best we can wish for is a tailing off in house prices. As long as 1) deflation rules the global economy, and 2) we have self-serving cretins in government and the central banks, the chances of a house price crash are very slim.

I once believed in the myth of central bank omnipotence, and I still don't underestimate their influence in delaying the inevitable at unreasonable costs. What changed my mind is the inability of competing economies to maintain their precarious balance in concert, given the interests in misalignments. For the UK, it's simply not possible. A prolonged period of mild decline is unprecedented and would defy all the forces the decline represents. Endless denial of recession is impossible. There won't be a gentle solution - that's been the aim since 2001, and that's what's now under pressure. The only possible outcome is a major rebalancing of the domestic economy.

Thanks for your considered response too.

[thisisthisitmaybe]

So I emailed Mish (of Mishtalk) on the deflation issue and this was his response:

"The bubble in 2007 burst with low inflation (of course they forget the bubble itself was a representation of inflation)
Mish"

 

That's as good a response as I could have hoped for...but in the UK at least, the bubble was quickly reflated, which would not have been possible without ultra low interest rates. But Spanish property certainly did burst even though interest rates were dropped. 

 

I'm in two minds, I still think central banks will ramp up QE and go zero interest rates in the event of dramatic housing drops.

 

As others on here have pointed out, the underlying economic problems we face come down to the fact that central banks and governments have prevented recessions "on their watch" through manipulating interest rates, leading to huge pressures and mega boom and bust.

 

 

[hi5lo5]

HPC cancelled, according to BoE survey. I felt really discouraged after reading this. Let me know what are your thoughts.

https://issuu.com/bankofengland/docs/qb16q4article3?e=22693371/42014313

Either we 36 are so deluded or the BoE?

[EnglishinWales]

Apparently about 70% of the land in Britain is 'owned' by about 1% of the population. We'll never have reasonable house prices whilst this remains unchanged.

[darkmarket]

12 hours ago, hi5lo5 said:

I felt really discouraged after reading this. Let me know what are your thoughts.

Interesting report, few quick thoughts:

- I can't believe the BoE has to publish via Issuu.

- I'm surprised how calm and rational people's response to the referendum is compared to the media sensationalism.

- The drop in marginal propensity to consume based on a rate reduction is interesting (from £0.5 to £0.15 in every pound 'saved'). This suggests if the Bank really did save the day after the referendum, it was QE that did it not the cut. Perhaps consumption based on debt is less likely to increase when the burden of that debt is lightened.

- Charts 17 and 19 are sad. 80% are confident in their personal financial situation. 40% don't have enough savings for an emergency.