Thursday, Jun 29, 2006
Bank of England in no hurry to raise interest rates
Reuters: Bank holding fire on rates amid economic uncertainty
It looks as though the Bank is concerned about IR rises on the economy as a whole and sees insufficient inflationary pressure for interest rates to rise.
Posted by othello @ 03:28 PM (189 views) Add Comment
16 Comments
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1. uncle tom said...
It's a closer call this time for the MPC decision, and very hard to judge how the surviving members will react to Walton's sudden death.
King's language is deliberately leaving the options open for the next meeting, and events over the next few days could swing things either way.
If I get this one right it'll be 40 on the trot - but I'm less certain about this one than practically any of the others.
However, on balance, my call for next week's meeting is:
NO CHANGE
2. devil's advocate said...
If the MPC believes there is insufficient inflationary pressure then at best thewre will be a 0.25% increase in the near future. Even if there was a 0.5% this year, this is not going to cause a crash.
3. harold said...
The markets have already got wind of BoE no change and marked the £ down, particularly against the $ and Euro. This is an important trend in that even if the BoE recon there is insufficient inflationary pressures to raise IR, the weakening £ will probably force the BoE to act in August.
DA, HPC is not just dependent on IR. A number of factors, for example unemployment or simply a critical mass of debt can trigger HPC - both are rising and will eventually have a predictable effect on house prices.
4. tyrellcorporation said...
I just bought a fistfull of Euros today as I reckon the £ will weaken considerably before my jolly jaunt to France in August!
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8. Dizzy said...
This is my first comment on this site. I have been compelled to write as I live in a rented house in SE London and three houses have recently sold on my road within two weeks of coming onto the market all with high asking prices. I did believe that a HPC was imminent but am beginning to lose the faith.
Could someone restore my belief!
9. harold said...
Dizzy, no one can predict HPC, and there is a chance (albeit extremely remote based on current and historical evidence) that it won't happen. Ultimately you have to look at the pile of bricks and mortar that someone is prepared to pay, for example, £500,000+ for and ask yourself whether or not that property is really worth that level of personal debt. If the answer to you is no, then don't abandon your common sense - not just yet anyhow.
10. harold said...
Tyrell, your euro gambit is enterprising, and it will be interesting to see if it pays off. However, at the moment the £ is already quite weak against the euro, so if it falls further - which it is currently doing - it will enter a BoE danger zone, i.e., £1 < E1.4. If that happens, expect the BoE to start buying £s like crazy. (Despite this, I fancy that the money markets might just take on the BoE, as they have in the past.)
Europe is our biggest trading partner, so although the weak pound might be good for exporters (those that we have left, anyhow), don't get stung by the price of Spanish strawberries next time you're in the supermarket.
11. bidin'matime said...
Dizzy - it's a long story. I keep a copy of most of my posts on this site and they now run to 32 A4 pages of 12pt text (this one takes it to 33..).. I sold my house and risk losing a great deal of cash if prices keep going up, so I too have to keep reminding myself why it makes sense to rent.
One of the most impressive pieces of evidence is the graph on this site (see graphs tab) comparing house prices to average earnings, going back to 1953 – whenever the ratio has approached 5 in the past, house prices have dropped – for the first time it has breached 5 and it’s now approaching 6 times earnings. History (and common sense) tells us that this is not sustainable.
Now, some will tell you that wages will rise until the ratio is restored to it’s long term average of 3.5 (the ‘soft landing’), but this will take steady wage inflation well above price inflation for a prolonged period – this is extremely unlikely, as your wages feed through to the prices that I pay, so eventually higher wage inflation feeds through to the inflation rate and this will force the BOE to raise interest rates, which will impact on the housing market.
As I see it, there are two possibilities: either prices fall slowly over a long period or they fall dramatically. The chances are that the very fact of a fall, however slow, will trigger the masses to steer clear of the market, which will bring about the faster fall. The chances of house prices eventually settling higher than today’s level are vanishingly small – no one with all the facts in front of them would bet a six figure sum of it! My money (most of my life savings..) is on a significant fall over the next few years.
12. uncle tom said...
Dizzy, house prices WILL fall because the market is fundamentally unsustainable.
The devil however, is in the timing. Whether things will turn sour this year, next or even the year after is hard to say, but if you look forward over the lifetime of a mortgage, and consider all the economic factors, it is impossible to create a scenario that does not involve a major house price upset.
The economy has become dependant on rapidly rising debt (both government and consumer ) and huge trade deficits. Together they represent an unavoidable recession-in-waiting.
House prices already price out far too many people, and the rise in private landlords does not offer a permanent solution, as rented property is intrinsically less efficient than property that is owned.
Rents may seem high, but they are not high enough to reward the new generation of mug landlords with an adequate return for their investment and risk taking.
So rent, save, wait, smile - and be patient!
13. Gingerbread said...
I am old enough to remember the last one Dizzy. And it wasn't pretty then either.
A yound man back then, I'd saved with my partner for a deposit only to see prices rocketing upwards. It seemed that every month we went searching for a flat, our 'borrowings' could get us less and less. There weren't even the league of BTLers we have now inflating the bubble even more. And I remember the mainstream press saying the same things they are now, all bull***t. Fundamentals sound, great time to buy, prices only go up, blah blah. Well we decided to step off the treadmill and blew the deposit on a years travel through SE Asia. best decision I ever made!
And now some years later, here we are again. An unsustainable asset bubble, ready to pop. As soon as sentiment starts to turn then it'll be like a house of cards, literally.
We STR in March and did not take this decision lightly. I'd be quite happy to rent now for a good few years and sit on the sidelines, watching and waiting. I genuinely feel sorry for those buying now, as negative equity is not a good place to be. As I said I've been here before and know people who bought at the last peak, one poor guy got repossesed. It really is horrible.
And I blame greedy EAs, greedy Banks eager to overlend, greedy BTLers and people who are not using their heads when they borrow 5x annual salaries! Oh and those twits on location, location etc.
14. Miss D. Boat said...
Bidding ones time and waiting for a crash is a fools game. In the unlikely situation that a crash does not happen then you miss out. If a crash does happen then all kinds of things will go along with it. I was there in the early 90's. Banks went bust with people's savings disappearing so those who might have hope to gain from a crash lost their advantage. Unemployment rose so those who didn't lose their hard won deposit lost their jobs and couldn't get a mortgage.
People always need somewhere to live. People don't need a car yet they buy one and they are not put off by the fact that it will be worth £1000 less next year. Everyone knows that buying a car is cheaper than renting it. My tip to you, Dizzy, is look at the cost of a house compared to its price. Buying a house close to its rebuild value is never going to lose you money in the long run as long as you do not overstretch your finances.
15. Geed said...
Bindin; Your smack on. Hang that chart of "house prices to average earnings" on every real estate wall in the country and you could count the days never mind months and years it will take for a HPC to start. Stark Cold Hard facts....
Gingerbread; love the travel tale. You cant put a "houseprice" on travel experiences. I have travelled far and wide over the last 6-7 years and until this bubble bursts i will continue to do so.
16. Gasket37 said...
Miss D. Boat - what a load of tripe
apart from BCCI (a fringe secondary bank), please provide the board with a list of banks which went bust in the last recession.