Consumer Inflation Climbs To 2%

[Marina]

Thanks ttrtr

This means know one knows where they are going, I think its dart board economics at the MPC

<{POST_SNAPBACK}>

I don't. I think they know exactly what they are doing and a firm hand on the tiller is required now. They won't drop rates. All the speculation comes from 'analysts' or, as many people now refer to them 'w@nkers who are paid a lot of money to know nothing about money'. Analysts are like a flock of sheep at the moment - one bleats they all bleat. Tossers and total w@nkers! Every single one of them.

They're all bleating about rates coming down. They're ALL wrong. And you trust these people to look after your money?

[Fancypants]

Why would anyone in their right mind start a business in the UK?

How is higher interest rates 'the vital ingredient for a whopping crash'? Dropping rates to near-zero in Japan didn't prevent a whopping crash there... why should it do the same in the UK?

If people choose not to borrow, interest rates are irrelevant.

<{POST_SNAPBACK}>

agreed. The correlation between IRs and house prices is significant, and has been particularly strong since the turn of the millenium - but it is far from the only factor at work. It is a crassly simplistic view to imagine that house prices depend solely, or evenly mainly, on IRs

I tend to agree with the view expressed above that you could drop them to zero and it wouldn't re-invigorate the economy. The economy is exhausted - lowering IRs from 2001 onwards acted as a short-term stimulant, nothing more. Those who argue differently sound a little like drug users who are craving another hit, and are confusing the high with a real sense of wellbeing

IMHO

[BandWagon]

Why would anyone in their right mind start a business in the UK?

How is higher interest rates 'the vital ingredient for a whopping crash'? Dropping rates to near-zero in Japan didn't prevent a whopping crash there... why should it do the same in the UK?

If people choose not to borrow, interest rates are irrelevant.

<{POST_SNAPBACK}>

True.

I would much rather we see a good (ie 50%) drop in prices over the next five years,major crash, rather than the Japanese case of 70% odd over 15 years, with years and years of economic pain.

Anyone disagree?

[FernandoMorientes]

I dont like to comment on possible % drops but "but a 15% peak to trough fall" would be okay for me.

Once the media gets bearish with falls like this sentiment can drive a market as we have plenty evidence of over the course of the past 5 years speculation on price drops is akin to tail on the donkey (IMO).

[OzzMosiz]

Same Fernando, I'd be happy with 15% drops and I'll be back on (with a 5-10% reduced offer of course )

[FernandoMorientes]

Same Fernando, I'd be happy with 15% drops and I'll be back on (with a 5-10% reduced offer of course )

Precisley sentiment will be negative if there are falls of this kind which could drive the market down further as potential buyers push for further bargains the trick is calling the bottom.....tail on the donkey springs to mind again

[doogie]

Presumably, given the lack of evidence for an IR increase any time in the next two yearsm, you are looking to unemployment to deliver the coup de grace to the housing market.

<{POST_SNAPBACK}>

The other potential for forced sellers this time around is the Buy-To-Let brigade, who could find that their long-term calculations no longer stack up. With interest rates stable and market rents falling, many of them could find they can no longer rely on MEWing their capital gains to maintain a positive cash-flow.

As I'm sure you know, it doesn't matter how in-it-for-the-long-term you are, if you can't maintain your positive cash flow, your business is sunk.

[theChuz]

I dont like to comment on possible % drops but "but a 15% peak to trough fall" would be okay for me.

Once the media gets bearish with falls like this sentiment can drive a  market as we have plenty evidence of over the course of the past 5 years speculation on price drops is akin to tail on the donkey (IMO).

<{POST_SNAPBACK}>

Really might aswell keep your 15% drop round here, 105K down to 90K for a bedsit.. no thanks. 90K for a semi.. average wage 18K.

15% nope.. 40% will put it back on track and thats not an over shoot either just back to trend.. all areas are differnt though is suppose.. BTW i live in gloucestershire not london or anything like that.

[surveyor]

I dont like to comment on possible % drops but "but a 15% peak to trough fall" would be okay for me.

Once the media gets bearish with falls like this sentiment can drive a  market as we have plenty evidence of over the course of the past 5 years speculation on price drops is akin to tail on the donkey (IMO).

<{POST_SNAPBACK}>

My 2p: seeing the falls over the past few months, slow but steady, I think you can expect a fall in values equivalent to a bedroom for the average properties only. That is a 2 bed flat down to a one bed in value, and a 4 bed house down to a 3 bed. Beyond that will be a happy bonus for some (if they're still in work). But I can't see that Brown as future PM will want his party spoiled by a crash and will do all he can to stave off what to some looks a certainty. Never underestimate the power of any government.

[Edhutch]

My 2p: seeing the falls over the past few months, slow but steady, I think you can expect a fall in values equivalent to a bedroom for the average properties only. That is a 2 bed flat down to a one bed in value, and a 4 bed house down to a 3 bed. Beyond that will be a happy bonus for some (if they're still in work). But I can't see that Brown as future PM will want his party spoiled by a crash and will do all he can to stave off what to some looks a certainty. Never underestimate the power of any government.

<{POST_SNAPBACK}>

Moderate bears of the world unite!

[bears all]

I'd be interested in your view, Edhutch, on the question of where the future growth in the economy is going to come from. Most people on here seem to think that growth has been fuelled by consumer borrowing and government spending (latterly, government borrowing as well). What if modest IR cuts don't bring home owners back on the MEWing trail and consumers back into the shops? What if Broon has to raise taxes? Where will the growth come from then? Worth remembering that growth in the economy was so weak that it appears to have been containable by a rate of only 4.75%.

I'm not trying to shoot you down - just interested in your views on this point.

[Guest Riser]

But I can't see that Brown as future PM will want his party spoiled by a crash and will do all he can to stave off what to some looks a certainty. Never underestimate the power of any government.

The government can't afford to get involved in stopping a crash we have seen how their pathetic attempt to help 5% of first time buyers could cost them £1billion and possibly 4 billion as prices collapse.

Things will just be getting warmed up when we reach 15% falls I have already published my prediction for the market on the Nationwide Thread

National HPI Prediction

House Prices pass through historical average around September 2007

Prices fall 40% from their peak by 2010

[Edhutch]

I'd be interested in your view, Edhutch, on the question of where the future growth in the economy is going to come from.  Most people on here seem to think that growth has been fuelled by consumer borrowing and government spending (latterly, government borrowing as well).  What if modest IR cuts don't bring home owners back on the MEWing trail and consumers back into the shops?  What if Broon has to raise taxes?  Where will the growth come from then?  Worth remembering that growth in the economy was so weak that it appears to have been containable by a rate of only 4.75%.

I'm not trying to shoot you down - just interested in your views on this point.

<{POST_SNAPBACK}>

MEWing has more or less ground to a halt, most would agree. Growth will be sluggish (1-2%) still not a recession, but lower than Brown has budgeted for. Some tax increases are probably inevitable. Nevertheless, it still all comes down to whether homeowners can manage their debt. Assuming most of them cling on to their jobs, at IR of 4.75 or lower, all of the evidence points to them being able to do this. When someone can point me to a UK recession which was NOT preceded by a sharp hike in interest rates to much higher levels than we currently have, then I might start believing in the collapse. It is difficult to see house prices going up in the next three years, of course, and much more likely that they will slowly fall, but I still don't see the trigger for a 30% fall. Yes there will be some falls, indeed we have already seen the start, but I genuinely don't see the signs for a plunge of the magnitude that many on these boards crave. The 40 year historical averages stuff is so much cobblers, because it wasn't until 1982 that mortgage lending rules were relaxed (people used to have to wait months/years just to borrow 2.5X salary) and it wasn't until the late 1990s that interest rates really started to come down to present levels. I am much more interested in arguments for a crash that focus on downside risks to the UK/world economy now (and there are a few) rather than antiquated **** and bull graphs that have little relevance/explanatory power re. the present situation. A lot of messages on these boards smack of desperation rather than reason.

[bennymac]

Edhutch,

Your opinions are interesting. Earlier on in the the thread you mentioned that the MPC takes a 2 year stance when looking at any cash rate decisions. I'd argue that the MPC cant cut rates without causing much more serious problems in the medium term to long term. A rate cut will have a serious effect on the pound, regardless of how much pessimism is already priced in. The cost pressures on imports caused by a further weakening, in line with oil which is now at $60 a barrel (and not looking to go significantly up or down anytime soon), I just cant see where the inflationary pressures are levelling off in the next year or 2? (Aside from consumption etc retail). Its like a catch 22; as you said, if rates stay where they are then housing is in serious trouble from the flow on effects of a dead high st. But if the MPC cuts in the hope of spurning consumption and stopping a crash, then there will be no ease in the cost pressures. And if the cut doesnt spurn consumption, then their will be job cuts on the high st, so housing is screwed anyway.

The bank is damned if they do, damned if they dont. What are your thoughts?

[BandWagon]

...

and much more likely that they will slowly fall, but I still don't see the trigger for a 30% fall. .....

.... A lot of messages on these boards smack of desperation rather than reason.

<{POST_SNAPBACK}>

Where did you get your crystal ball?

If you don't see a trigger for 30% falls, does that mean your crystal ball shows the future is clear, or maybe your crystal ball is broken?

I can guarantee you that people who bought in 1988 didn't know the ERM mess would happen in 1992.

An economic shock, is by definition, unexpected.

If you're looking for anything other than reason, I suggest you start by looking at your own arguments.

Edited July 13, 2005 by BandWagon

[RichM]

The governement painted themselves into a corner years ago now, the moment they decided to let people borrow shed loads of cash.

High debt, low IRs, no way out - no inflation, and difficult to pay off the principal.

Not enough debt-free youngsters, and even the socialist workers are starting to have a go at Brown! (see blog)

[Guest Riser]

The 40 year historical averages stuff is so much cobblers, because it wasn't until 1982 that mortgage lending rules were relaxed (people used to have to wait months/years just to borrow 2.5X salary)

Mortgage lending rules are just one of many factors that have contributed to each bubble since the boom bust cycle began in the 70's and the mix of all the factors is different each time. If it was just down to relaxed mortgauge lending then how do you explain the 1974 bubble with national prices reaching 45% of the long term average ?

Mortgage lenders and banks have been likened to "a guy who offers you an umbrella when its sunny then wants it back as soon as it starts raining" as the rate of price falls increases the lenders will be forced to limit loans to sensible multiples of around 2.5 x joint income if they are to avoid going under due to bad debt.

and it wasn't until the late 1990s that interest rates really started to come down to present levels

Many Bulls try and use low interest rates as a justification for it being "different this time" but you can't look at interest rates without considering the massive levels of personal debt that they have caused since the late 1990's. The party is well and truely over for the UK and its now time to start paying the bill, 80% of Browns economic miracle has been based on increased consumer spending that has caused £1.1 Trillion debt.

If you really want to here many of the arguements why the UK economy is in trouble then look at the article in the Blog.

Brown’s ‘miracle’ runs into trouble

[Pheno]

If you really want to here many of the arguements why the UK economy is in trouble then look at the article in the Blog.

Brown’s ‘miracle’ runs into trouble

<{POST_SNAPBACK}>

Hmmm socialist worker.... not the best source to find expert economic analysis.

[Guest Riser]

Hmmm socialist worker....  not the best source to find expert economic analysis.

<{POST_SNAPBACK}>

Not my cup of tea either but the main points are still valid

Edited July 13, 2005 by Riser

[zzg113]

Edhutch,

The sterling exchange rates aren't really part of the MPC's remit

Oh really?

http://www.bankofengland.co.uk/about/corep...y_stability.htm

Core Purposes - Monetary Stability

Price stability and monetary policy

The first objective of any central bank is to safeguard the value of the currency in terms of what it will purchase at home and in terms of other currencies. Monetary policy is directed to achieving this objective

[Edhutch]

Edhutch,

Oh really?

http://www.bankofengland.co.uk/about/corep...y_stability.htm

<{POST_SNAPBACK}>

Read on to the next paragraph dummy!

"The Bank's price stability objective is made explicit in the present monetary policy framework. It has two main elements: an annual inflation target set each year by the Government and a commitment to an open and accountable policy-making regime."

Nothing explicit about exchange rates in the key policy paragraph.

Of course, if the pound plunged drastically against the currencies of those countries from whom we buy most of our goods then of course this would have inflationary knock-on effects on the cost of imports, but I say it again, the MPC has to meet the domestic inflation target set by the govt. (currently 2%) - end of story. This is one of the reasons why, for example, manufacturers are ignored when they complain that our interest rate (and currency exchange rate) are too high for exporting British goods.

The real danger for the world economy is if the Chinese banks stop propping up the US dollar, but so far they have shown no sign of bailing out (because by artificially buying dollars they keep their own currency undervalued which in turn keeps Chinese exports booming). If HPC posters were more economically literate this is the type of thing that would be discussed on the forums. The Chinese banks really are the lynchpin of the world economy and, by implication, UK house prices, atm. Gordon Brown, Mervyn King and Al Greenspan all pale into irrelevance by comparison.

[zzg113]

This is one of the reasons why, for example, manufacturers are ignored when they complain that our interest rate (and currency exchange rate) are too high for exporting British goods.

No. Manufacturers are ignored because they produce less than 20% of UK GDP.

http://www.dti.gov.uk/ministers/speeches/hewitt070704.html

Nothing explicit about exchange rates in the key policy paragraph.

What horsesh1t is this? The sentence about exchange rates is sited quite clearly under the heading "CORE PURPOSES". I see no heading entitled "Key Policy Paragraph" which you have just made up to try and cover up the fact that you have been found to be spouting sh1te.

if the pound plunged drastically

Which it has done recently.

The real danger for the world economy is if the Chinese banks stop propping up the US dollar, but so far they have shown no sign of bailing out (because by artificially buying dollars they keep their own currency undervalued which in turn keeps Chinese exports booming). If HPC posters were more economically literate this is the type of thing that would be discussed on the forums.

If you were "economically literate" you would realise at once why it is not in China's interests to collapse the dollar. By the way, how does one go about "artificially" buying dollars? Do you mean they just pretend to buy them?

And the vendor-financing scheme that China is currently running with the West has been discussed to death on this forum. Of course you wouldn't know that, because instead of actually looking to see if it has been discussed BEFORE shooting your mouth off, you go off half-cocked and make yourself look like a complete berk.

Edited July 13, 2005 by zzg113

[zzg113]

if the Chinese banks stop propping up the US dollar

Oh, and by the way, the Chinese banks HAVE stopped propping up the dollar (for now). And yet the dollar keeps on rising.....weird huh?

http://www.kitcocasey.com/displayArticle.php?id=116

[BandWagon]

... If HPC posters were more economically literate this is the type of thing that would be discussed on the forums. The Chinese banks really are the lynchpin of the world economy and, by implication, UK house prices, atm. Gordon Brown, Mervyn King and Al Greenspan all pale into irrelevance by comparison.

<{POST_SNAPBACK}>

I think you will find many articles discussing the possible effects of revaluing the yuan on this site.

Oh, and what about Asian banks, have you forgotten them too? It's not just China propping up the Dollar.

How's the future gazing going, still don't "see" any economic shocks heading our way?

[Edhutch]

No. Manufacturers are ignored because they produce less than 20% of UK GDP.

http://www.dti.gov.uk/ministers/speeches/hewitt070704.html

What horsesh1t is this? The sentence about exchange rates is sited quite clearly under the heading "CORE PURPOSES". I see no heading entitled "Key Policy Paragraph" which you have just made up to try and cover up the fact that you have been found to be spouting sh1te.

Which it has done recently.

If you were "economically literate" you would realise at once why it is not in China's interests to collapse the dollar. By the way, how does one go about "artificially" buying dollars?   Do you mean they just pretend to buy them?

And the vendor-financing scheme that China is currently running with the West has been discussed to death on this forum. Of course you wouldn't know that, because instead of actually looking to see if it has been discussed BEFORE shooting your mouth off, you go off half-cocked and make yourself look like a prize tw@t. Congratulations, cheeshead.

<{POST_SNAPBACK}>

The paragraph I quoted is indeed the central paragraph for MPC policy-making as it outlines the key rules by which they operate. Exchange rates are significant only to the extent that they affect UK inflation rates.

I admit that Dr Bubb in particular has set out the position of the Chinese banks and I should probably retract that. Your mocking of my use of the word "artificially", however, is just hair-splitting. It is a short-hand for explaining that the Chinese buy US dollars not because they think they think they are a brilliant investment per se but so that they can peg their own currency and keep their exports flowing and their surpluses very healthy indeed.

Your intemperate ranting merely serves to to hint at how crude and off the wall you are in your Crash fantasies and how shirty you get with anyone who takes a more modest view of the likely falls. Whenever I come on these boards I meet a few people with sensible opinions and ideas for which they argue cogently and reasonably, but far more with apocalyptic fantasies which are backed up by nothing more than a wing and a prayer.