Thursday, May 27, 2010
But... but... won't someone think of the housing market?!
Telegraph: UK interest rates must rise to 3.5pc, says OECD
The OECD said rates would have to start rising this year from the historically low level of 0.5pc that they have been held at since March 2009 because inflation expectations were creeping up.
"The reversal of the December 2008 VAT cut and higher fuel prices have contributed to the recent jump in inflation. Notwithstanding the temporary nature of these price developments, the gradual drift up of some measures of inflation expectations implies a need to increase interest rates earlier than previously thought and no later than the last quarter of 2010," it said in its latest Economic Outlook. "The projected increase of core inflation to the Bank of England target warrants policy rate to 3.5pc by the end of 2011."
Posted by drewster @ 06:39 PM (1513 views) Add Comment
7 Comments
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1. str 2007 said...
How much influence on interest rate decisions do the OECD actually have ?
2. str 2007 said...
And Mervyns remit id 2% inflation target.
Why doesn't he put rates up until it's under control then stop putting rates up or even reduce them a little if inflation falls below say 1%.
Or is he a puppet for some BIG money out there.
What actually is his main motivation for keeping interest rates so low.
We imagine that he was previously being bullied by Gordon Brown, but who's pulling the strings now ?
3. jack c said...
str2007 - in fairness Mr King is the head of a commitee (MPC) - he cant make the decision alone on setting IR's however he no doubt has a big influence.
Picking up on the point I think you are trying to make - this from me 2 days ago on the "deflation thread"
5. jack c said...Bearing in mind the BOE/MPC main task is to keep CPI within a target range of 2% plus or minus 1% the figures for the last 5 months make interesting reading. CPI as follows - Dec 2009 sneaked in at 2.9% Jan 3.5% Feb 3.0% March 3.4% April 3.7%
Would it be fair to say the MPC are not doing a very good job, Mr King is writing too many excuse letters to the Chancellor and the repeated talk of deflation is a bit of a red herring or scare tactic?
Tuesday, May 25, 2010 11:23AM
4. str 2007 said...
Hi Jack
Yes exactly. If inflations going to come down it will. In the meantime it's above target so they should do something. Clearly IF it drops below 1% then again they should do something which would be to reduce rates again.
Personally I think it's a big IF.
5. doggett said...
jack c said
"Would it be fair to say the MPC are not doing a very good job, Mr King is writing too many excuse letters to the Chancellor and the repeated talk of deflation is a bit of a red herring or scare tactic?"
I don't think it would be fair, Jack. King and the MPC are in an impossible position, given that their remit is to maintain CPI at 2%, when they're well aware that what they appear to consider their main problem - containing (monetary) deflationary pressures - would be made more difficult by raising interest rates.
A comment on the Telegraph article is, I think, relevant (slightly amended) ;
"The rigid target of 2% for [price] inflation should not be allowed to determine ... interest rates. The Bank of England's remit should be to take action in the best interests of the economy, not simply to control [price] inflation as the be all and end all."
I think this is what King is trying to do, pushing as far as he's able against the straitjacket of his official remit.
6. paul said...
But ... but ... won't somebody just think about the children, and the hardworking famblees, please! (etc.)
recaptcha: itemizes cruelty
7. str 2007 said...
doggett
It depends on what you consider the best interests of the economy.
Would you consider ever spiralling house prices a good thing ?
Lets take 2005 for example. As soon as the housing market showed signs of reaching it's limits they immediately dropped interest rates blowingthe bubble further.
Would you have said that move was in the best interests of the country or the best interest of those with large BTL portfolios or Ministers in the process of flipping tax payer funded houses for their own gains ?