Thursday, Nov 15, 2007
We're finished if this comes true!
Telegraph: Bank of England hints at interest rate cuts
Home owners are likely to see their mortgage bills slashed next year after the Bank of England indicated that it is primed to substantially cut interest rates.
Alan Clarke, economist at investment bank BNP Paribas, said: "We now believe the Monetary Policy Committee will deliver the first interest rate cut at the December meeting.
"We expect substantial interest rate cuts throughout 2008, taking the Bank rate to slightly below neutral - to a level of 4.5 per cent in our view."
Posted by tyrellcorporation @ 07:08 AM (1121 views) Add Comment
21 Comments
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1. planning4acrash said...
I don't believe a word of it. Why would Gordon Brown postpone the crash until the 2010 election? That would be STUPID, then again?!
2. tyrellcorporation said...
Incredibly strident language in this article. Some poor hack must be on the verge of reposession!
Can someone explain why the MPC are making statements like this when the inflation risks are clearly on the upside? To deliver rate cuts they'll need a powerful deflationery basket item... HOUSES!!! Are they on the cusp of including them in the CPI?
3. Quiet Guy said...
"average mortgage payment would shrink to £583.34"
I can only imagine that this "average" is based upon all mortgages, including those started many years ago and coming to a close. We cannot address our debt culture by tinkering with the interest rate by a few points. BoE can postpone the day when we start living within our means but not avoid it for ever.
Rules are rules.
Debt is debt.
4. paul said...
"If the Bank cuts rates three times to 5 per cent, the average mortgage payment would shrink to £583.34, saving home owners a potential £750 over a year."
Firstly, there's no way the MPC can afford to cut as early as December with current inflationary pressures. 750 quid a year isn't actually all that much of a reduction either.
Do you think that such a cut will prevent the housing market slowdown? Akin to pushing on a piece of string if you ask me.
Additionally, after yesterday's revelation that the Mervyn might be looking to include house prices in the CPI now that house prices are dropping, having thought about it I now think it would look extraordinarily crass, and make a mockery out of the inflation figures and monetary policy.
In other words, moving the goalposts off the pitch because your side has had a player sent off isn't likely to go down well with either side's fans.
Right now I just don't think the Bank of England can afford to simply assume that no-one will pick up on such a divisive move. I could be wrong, but I just don't think the BofE would be stupid enough to take the British public for idiots.
5. sold 2 rent 1 said...
"Are they on the cusp of including them in the CPI?"
If they did, they could then claim getting inflation down from 25pc to 0pc in 5 years. That's impressive economic management. NOT
6. paul said...
Sorry - there's more.
This hint at a rate cut is designed to shape expectations only, and get people to spend at Christmas. That's all. Remember, Mervyn believes that more than half of his job is to SHAPE the public's inflationary expectations, and this is a less-than-subtle way of trying to do it.
7. sold 2 rent 1 said...
You can lower short term rates but 2 year fixed deals may remain high. The "market" may decide the risks of default mean higher rates.
The number of people being refused loans is rising, along with repossessions, so the housing market cannot be saved.
Long term rates normally peak in a credit crunch. I don't think this credit crunch has peaked yet.
8. Jason74 said...
Yep. It looks like it truly is game over as far as HPC is concerned. The powers that be seem to be prepared to do whatever is needed to ensure that this is the case
9. tyrellcorporation said...
@Paul... 'having thought about it I now think it would look extraordinarily crass, and make a mockery out of the inflation figures and monetary policy.'
Remember Gordon Brown moving the goal posts for his Golden Rule? He was set to miss his targets so he thought 'bu**er this, I'll change the rule so I hit my targets!'. There was a few articles highlighting what he'd done but 99.99% of people just went about their business as usual and the left-leaning media had no stomach to make an issue of it.
I think politicians now realise that a bit of short term press (a bad headline or two) is worth it when you can bask in good press for years to come as a result of your fiddling. I certainly wouldn't rule out the MPC/BoE taking this corrupt step.
10. Mr_sensible said...
This is a bad piece of journalism. What did the BoE actually say? This Telegraph aritcle talks about 'hints' and what the bank 'indicated', but gives no quotes to back it up!
The only quotes on the subject are form outsiders, e.g. unnamed "experts" predicting a fall in IR next month, and this from an economist at BNP Paribas, saying what he 'believes':
"We now believe the Monetary Policy Committee will deliver the first interest rate cut at the December meeting. We expect substantial interest rate cuts throughout 2008, taking the Bank rate to slightly below neutral - to a level of 4.5 per cent in our view."
The only quote from Mervyn King in that article is "The housing market slowdown has now arrived", and an (unquoted) warning from him that (surprise surprise) the credit crunch won't go away.
So that's all clear as mud then!
Is this just the Telegraph is trying to put words in Mervyn's mouth?
11. Another Alan said...
With the mandate that they have, there is no way that they can cut rates.
12. bingo said...
Just the hint of an interest rate cut is causing the Pound to devalue against other currencies. Considering we are a net importer of 'crap', this will send inflation soaring to new levels. The B of E are going to have to talk this down somehow, otherwise, just like the general election, Christmess will have to be cancelled/postponed until further notice.
13. Becky said...
Interesting to read Larry Elliot's comments in the Guardian. I think it wil be very tricky for them to justify cuts if inflation is above target so keep an eye out for any more sneaky attempts to manipulate the figures.
'King gave no hint that interest rates would be cut soon, pointing out that the Bank remained concerned that dearer energy and food would prompt higher pay demands and the start of a wage-price spiral. "In comparison with August, the near-term outlook is less benign for both inflation and growth. Last week, the MPC judged that it was appropriate to leave bank rate ahead. There will be some difficult decisions in the months ahead."
14. D Turner said...
If a slow down is on the cards the job market will become tight. some company's might find it hard to get cash. It could run out of control ( I hope ).
15. uncle tom said...
Our Merv is feeling a bit left out - he wants his MPC chums to be leading the market - not following it.
His current strategy looks unwise..
16. C'mon Correction said...
Sterling is dropping fast. Now under 1.4 to the Euro, and unwinding against the Yen. I can see inflation from distant shores marching it's way here as we speak.
I think soon, everyone (Joe Public included) will disregard inflation figures that Nu Labour cook up completely. RPI now heading strongly upwards 4%+ - makes the Union's settlements of around the 2% mark look pathetic.
17. Wdbeast said...
If the BoE did reduce base rates by 0.25%, how much do you think would be passed on to mortgage rates, not much at all is my bet.
The banks would just use the opportunity to increase their margins, which they are desperate to do in the current market.
18. tyrellcorporation said...
Are the comments designed to weaken the pound to stimulate export demand? After all, UK PLC will be finished if consumer spending dries up and the service sector goes with it. Tax reciepts will fall and with it Government spending. The only thing left to come to the rescue will be revenue from exports - which are currently being hammered by a strong Pound.
19. cornishman said...
The comments have weakened the pound. I wouldn't imagine that happened by accident.
20. doomwatch said...
I had to laugh at the hacked "news" in the London Evening Standard and Metro last night and this morning, saying
that interest rates were to fall in 08, based on some BNP Paribas analyst's knee jerk reaction to Swerve's comments.
It really is incredulous how transparently desperate these two "new papers" are to keep the London housing market afloat
when most free thinking individuals know it's a lame duck & and have smelled the blood.
21. denzil said...
This article from the BBC makes The Sun look like a wholesome academic read.
What's interesting is that BBC Online seem not to present the general view of the BBC. BBC Online cut 'n' paste editors were yesterday squawking about how the BoE were talking about rates cuts in the inflationary report whereas BBC Radio 4 were very bleak in their assessment and made no mention of cuts.
I'm personally reaching the point where I can't be bothered to even read BBC Online as it is providing spin of Alistair Campbell proportions.
As for the fantasy and conjecture of falling house prices being used to offset real inflation in the CPI can we stick to sensible fact. The RPIX includes housing costs already. It can be argued that the RPI should be the true measure used for setting rates but the CPI is based on cost to the individual not asset costs. If prices drop but base rates rise a percent then inflation will rise. If prices were to fall 30-40% then we could CPI inflation would be deflation which would not be very good when attempting to negotiate a pay raise because mortgage rates went up a 1%.