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Deckard

Uk Likely To Raise Rates Before Anyone Else In The G7

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http://www.bloomberg.com/apps/news?pid=206...id=a81vKxFUgKwY

July 27 (Bloomberg) -- Bank of England Governor Mervyn King may beat Ben S. Bernanke to the emergency exit.

King, 61, will be in the vanguard of a global push to raise interest rates next year as he grapples with the highest inflation expectations in the Group of Seven industrialized nations, say economists at Goldman Sachs Group Inc. and Deutsche Bank AG.

...

“The Bank of England could be the first out of the stable,†said Willem Buiter, a professor at the London School of Economics and a former central-bank policy maker. “

...

The U.K. inflation rate will be the fastest in the G-7 next year, the Paris-based Organization for Economic Cooperation and Development predicts. Investors expect it to be the highest on average among major industrial economies over the next decade.

...

“The U.K. has had more stimulus relative to elsewhere, as well as lower sterling,†said George Buckley, chief U.K. economist at Deutsche Bank in London. “We may well be the first to hike rates. The pound will recover if the economy recovers more quickly than elsewhere.â€

...

Investors may be underestimating the strength of the British economy, said Stephen Jen, managing director of macro and currencies at BlueGold Capital Management LLP in London, which has $1.3 billion in assets under management. The pound’s decline has gone too far, he said.

...

“Central banks have got their foot to the floor and the wheels are spinning in the mud,†said Steven Bell, who runs a $222 million hedge fund at GLC Ltd. in London. “But if the wheels get traction, we could get a very sharp recovery. The U.K. has the best prospects of the major countries, and growth will be stronger than people expect.â€

Interesting read, with a few valid points about imported inflation due to £ weakness.

Personally, I can't see UK rates being hiked aytime soon, but the fact that people start talking about seems to confirm that the market has shifted to full recovery mood - for now.

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What I found interesting is that apparantly the worlds largest manufacturer of mechanical and marine seals is British as is Europes largest roofing and insulation supplier. Two more unsung heroes to go with RR, GKN, Glaxo, Astra, F1 cars, etc.

We make nuffink nomore.

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This report totally contradicts Roger Bootle on Today this morning, who was commenting on a new report produced by Deloittes. He was adamant that rates would not be raised for the next two years!

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What I found interesting is that apparantly the worlds largest manufacturer of mechanical and marine seals is British as is Europes largest roofing and insulation supplier. Two more unsung heroes to go with RR, GKN, Glaxo, Astra, F1 cars, etc.

We make nuffink nomore.

The uk is the worlds 7th largest exporter, we are either the worlds largest/second largest Manufacturing exporter per head of our population. if we triple our exports we would export more than china.

Top7Manufacturers.jpg

post-552-1248691203_thumb.jpg

Edited by moosetea

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This report totally contradicts Roger Bootle on Today this morning, who was commenting on a new report produced by Deloittes. He was adamant that rates would not be raised for the next two years!

The difference is this report is investment banks all saying we are independent whilst talking thier book. i.e they have taken thier market positions that if this happens they will make a lot of money and then send out all thier so called "experts" to talk their book.

At least Deloittes do not have a vested interest in the outcome of their report so I know what one I am more likely to believe.

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The uk is the worlds 7th largest exporter, we are either the worlds largest/second largest exporter per head of our population. if we triple our exports we would export more than china.

a title on the grpah and what the x and y axis would be a help

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http://www.bloomberg.com/apps/news?pid=206...id=a81vKxFUgKwY

Interesting read, with a few valid points about imported inflation due to £ weakness.

Personally, I can't see UK rates being hiked aytime soon, but the fact that people start talking about seems to confirm that the market has shifted to full recovery mood - for now.

if you look at what makes up RPI (albeit an imperfect measure) most of its domestically produced or in a state of depressed demand

The UK may well be one of the first to raise rates, but perhaps not much in the short term

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This report totally contradicts Roger Bootle on Today this morning, who was commenting on a new report produced by Deloittes. He was adamant that rates would not be raised for the next two years!

I am not sure if I am as eminent as Dr Bootle, but it looks to me as if rates need to go up now.

A normal rate for the UK is 4 - 6% if anything can be said to be 'normal' anymore.

Above that, rates tend to depress the economy, below that leads to stimulus.

And it does look from where I am that people are out spending money again, the fear has gone, the medicine has worked.

So now rates need to rise. But at 1/2 percent a month, it will take 7 months to get to a neutralish 4%, assuming we started now. That delay could end up turbo-charging our economy. The BofE would then have to slam the anchors on as it became obvious that rates had been left too low for too long.

Still, with an election on the way, I dont see an end coming to this latest government engineered boom until the election is over, so I am expecting rates to only be around 2% at most in May 2010. So those anchors will have to come on hard towards the end of 2010.

So if we are going to have a big crash in house prices, expect that to happen in 2011 as mortgages become unaffordable for those that have stretched too far. Lets hope the new government has some backbone, and doesnt pick the pockets of those without homes to keep those who were reckless in their homes when justice dictates the reckless should be swapping ownership with the dispossessed.

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A normal rate for the UK is 4 - 6%

You have to look at real interest rates.

The current real yield on US 10-year treasuries is 5.11%.

http://www.bloomberg.com/apps/news?pid=206...id=aJCCDBZQm2HY

July 27 (Bloomberg) -- The highest inflation-adjusted yields in 15 years are helping provide the Treasury with record demand at auctions as the U.S. prepares to sell $115 billion of notes this week.

Treasuries are the cheapest relative to inflation since 1994 after consumer prices fell 1.4 percent in June from a year earlier. The real yield, or the difference between rates on government securities and inflation, for 10-year notes was 5.11 percent today, compared with an average of 2.74 percent over the past 20 years.

By the same token, the current real yield on 10 year Gilts is nearly 6 pct.

Edited by VoteWithYourFeet

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I would argue that the master plan is to keep BoE rate low (very low) by historical standards and to take demand out of the economy by tax rises. Why, if the BoE controls demand by it;s interest rates it does nothing to solve the borrowing crisis that the coutry is in. Where as if they keep rates low and increase taxs VAT to 22.5% or even 25% and remove tax credits, keep benefits fixed for 5 years or even reduce them. This way inflation can be controlled demand moderated and the govt debt paid off.

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a title on the grpah and what the x and y axis would be a help

Billions of dollars i think, the source of the data is on a much earlier thread

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So if we are going to have a big crash in house prices, expect that to happen in 2011 as mortgages become unaffordable for those that have stretched too far.

At the risk of sounding like a bull, I can't help musing that, even after 15-20% falls the "big one" is always postulated as just around the corner, but not right now!

Isn't it more likely prices will just meander down slowly in nominal and/or real terms a la 1992-96?

(edit to make the emphasis a bit clearer)

Edited by scottbeard

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The difference is this report is investment banks all saying we are independent whilst talking thier book. i.e they have taken thier market positions that if this happens they will make a lot of money and then send out all thier so called "experts" to talk their book.

At least Deloittes do not have a vested interest in the outcome of their report so I know what one I am more likely to believe.

Yep reports like this need to be taken with a pinch of salt. How much has said company got bet on inflation in the UK.

Has the UK's debt problem suddenly disappeared?

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At the risk of sounding like a bull, I can't help musing that, even after 15-20% falls the "big one" is always postulated as just around the corner, but not right now!

Isn't it more likely prices will just meander down slowly in nominal and/or real terms a la 1992-96?

(edit to make the emphasis a bit clearer)

The fall in the early nineties put house prices below the long term average income multiples though :unsure:

They are still way above the average now :blink:

Which implies further falls or a decade of meandering?

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I would argue that the master plan is to keep BoE rate low (very low) by historical standards and to take demand out of the economy by tax rises. Why, if the BoE controls demand by it;s interest rates it does nothing to solve the borrowing crisis that the coutry is in. Where as if they keep rates low and increase taxs VAT to 22.5% or even 25% and remove tax credits, keep benefits fixed for 5 years or even reduce them. This way inflation can be controlled demand moderated and the govt debt paid off.

never thought of it that way. allow people to "afford" their mortgage with the low rates but lower their standard of living my taxing heavier. otherwise higher rates would keep the downward spiral going.

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I would argue that the master plan is to keep BoE rate low (very low) by historical standards and to take demand out of the economy by tax rises. Why, if the BoE controls demand by it;s interest rates it does nothing to solve the borrowing crisis that the coutry is in. Where as if they keep rates low and increase taxs VAT to 22.5% or even 25% and remove tax credits, keep benefits fixed for 5 years or even reduce them. This way inflation can be controlled demand moderated and the govt debt paid off.

That only works if most borrowers are on trackers, if they are fixed your plan doesn't work.

So they are going to use fiscal drag to control inflation? Interesting theory.

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At the risk of sounding like a bull, I can't help musing that, even after 15-20% falls the "big one" is always postulated as just around the corner, but not right now!

Isn't it more likely prices will just meander down slowly in nominal and/or real terms a la 1992-96?

(edit to make the emphasis a bit clearer)

Scottbeard,

you may well be right.

I was just making a guess after all, no harm in that.

We know that asset prices are inversely related to interest rates. Cos if interest rates rise, it becomes a better bet normally to hold cash in the bank than an asset with a fixed income. Same applies to houses, though their prices tend to move only stubbornly. With interest rates at sucha low level, and cash being pumped into the economy, house prices were bound to catch at least a bit of that inflationary action.

So, just speculating of course, when the action becomes deflationary, as it is likely to after the next election, house prices could well catch a bit of that action as well.

But against that, immigration is totally out of control, creating a huge demand for housing, and forcing prices up to the massive multiples of average income that we see today. I cant see an end to the UK being a desirable place for most of the world to move to, nor can I see anyone changing the policy here. Even the BNP would have trouble stemming the flow, such is the desire of humanity to live in the UK it seems. (Net of course, lots of individuals posting here will say life is better elsewhere).

So if prices are to tumble, it will be after rising interest rates have wielded the proverbial 'knife'. And even that might not bring down house prices to levels at which ordinary people can afford.

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just watching Bloomy now - Susan O Halloran just had a slip of the tongue and said 'Head ****' on air

fnurk

fwah fwah fwaaaah

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That only works if most borrowers are on trackers, if they are fixed your plan doesn't work.

So they are going to use fiscal drag to control inflation? Interesting theory.

There is a common misconception on here that SVR's are in the high 6 to 7% range and they are not, for the major banks and BS they are around 3.5 to 3.9% and I think from memory that the mortgage market is split pretty evenly 1/3rd for tracker, fixed and SVR.

http://www.100mortgages.org/20090108/natio...d-hsbc-new-svr/

So my thoery would apply to 66% of the market immediately and the majority of fixed rates would join when they expire to an SVR and this would actually be the stimulus to the economy over time as these people had more free cashto spend.

I am expecting McDoomed to nick my plan and present it as part of his manifesto forthwith.

This is the only reason that I can think of why retail sales are holding up so well because if we really were in a serious recession then retail sales should absolutley be tanking.

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