Why We Will See Even Lower Rates Soon

[Time to raise the rents.]

Evening.

You all seem to have become very excited recently with the prospect of flat or higher rates, rather than falling rates. You're being sucked in by news stories IMO.

I'd like to point out that 2 weeks ago, many were posting that the fall in sterling & the subsequent imported inflation would force the BOE to watch the inflation meter instead of the growth meter. Falling sterling would only occur with definitie rate drop expectations.

But what has happened now with a little infation rearing it's head is that sterling has appreciated, expectations have been tamed and the consumer will keep their belts tight & their purse strings tied. Causing the growth meter to become much more important again.

This in the end will lead to the need for an actual rate cut (or 2 or 3) because expectations of trouble ahead (caused by tighter consumer spending etc) can only be dampened by lower rates.

The Swedish central bank wrote a great article on this phenomenon a couple of years ago. It seems that they worked out that the threat of higher rates is often enough to dampening economic activity, whilst to stimulate activity, the expectation of falls isn't enough, only actual falls will work. So they realised that tightening cycles would usually be shorter than loosening cycles.

I wish I could link that article, but maybe another time when I have more time to look for it.

[Guest Charlie The Tramp]

The Swedish central bank wrote a great article on this phenomenon a couple of years ago. It seems that they worked out that the threat of higher rates is often enough to dampening economic activity, whilst to stimulate activity, the expectation of falls isn't enough, only actual falls will work. So they realised that tightening cycles would usually be shorter than loosening cycles.

I don`t think the hierarchy of the MPC would agree, cut rates to 2% or 3% and the lunatics would break out of the asylum.

[gone west]

With oil pushing and the Chinese revalueing, I can't see inflationary pressures easing. Although I am not sure the latest figure of 2.3% is a trend or a blip. Next month will tell.

[VacantPossession]

Evening.

You all seem to have become very excited recently with the prospect of flat or higher rates, rather than falling rates. You're being sucked in by news stories IMO.

I'd like to point out that 2 weeks ago, many were posting that the fall in sterling & the subsequent imported inflation would force the BOE to watch the inflation meter instead of the growth meter. Falling sterling would only occur with definitie rate drop expectations.

But what has happened now with a little infation rearing it's head is that sterling has appreciated, expectations have been tamed and the consumer will keep their belts tight & their purse strings tied. Causing the growth meter to become much more important again.

This in the end will lead to the need for an actual rate cut (or 2 or 3) because expectations of trouble ahead (caused by tighter consumer spending etc) can only be dampened by lower rates.

The Swedish central bank wrote a great article on this phenomenon a couple of years ago. It seems that they worked out that the threat of higher rates is often enough to dampening economic activity, whilst to stimulate activity, the expectation of falls isn't enough, only actual falls will work. So they realised that tightening cycles would usually be shorter than loosening cycles.

I wish I could link that article, but maybe another time when I have more time to look for it.

<{POST_SNAPBACK}>

Addressing the issue and not you personally.... so now a mere hint at a threatened interest rate increase which might or might not come to fruition is somehow akin to wagging fingers and everyone behaves accordingly? I always thought "futures" was a bogus and ludicrous market but this confirms it.

How many butterfly movements in the future do you wish the entire economy to be based on?

As (and you well know) has been pointed out on this forum hundreds of times before, tiny movements in interest rates, mythical, threatened, real or promised, will not make the slightest difference to the core direction in which we are travelling.

You might as well say a spec of dust will alter Jupiter's orbit.

VP

Edited August 22, 2005 by VacantPossession

[Time to raise the rents.]

Here's an example of inflation from Sweden.

Approx 3 months ago, before they cut their rate by .5%, Swedish inflation was 0.1%. Following the cut, it picked up to 0.6% (a 600% increase the HPC bears would scream, raise rates!!!! ) probably due to imported inflation following SEK's revaluation with lower IR's being the cause.

Now a little further down the track, Swedish inflation has settled back to 0.3%

So what is going on there and is it a worthwile example to what can soon happen to UK inlfation? With imported inflation removed by dampened expectations, your guess is as good as mine.

Lets not forget that Swedish inflation is also affected by oil & China etc etc.

Link to Swedish inflation in English here

[VacantPossession]

As I said....a spec of dust. Give up while the going's good.

VP

[Time to raise the rents.]

Addressing the issue and not you personally.... so now a mere hint at a threatened interest rate increase which might or might not come to fruition is somehow akin to wagging fingers and everyone behaves accordingly?  I always thought "futures" was a bogus and ludicrous market but this confirms it.

How many butterfly movements in the future do you wish the entire economy to be based on?

As (and you well know) has been pointed out on this forum hundreds of times before, tiny movements in interest rates, mythical, threatened, real or promised, will not make the slightest difference to the core direction in which we are travelling.

You might as well say a spec of dust will alter Jupiter's orbit.

VP

<{POST_SNAPBACK}>

When Mervin & the gang hiked twice in 2 months, they saved us from probably another .5% or evening .75% because the speed of the rise scared the market.

It was about the time I joined HPC & I can say it even scared me.

So IMO the more the papers print the threat of rate rises these days, the less chance they're coming.

[Guest Charlie The Tramp]

So IMO the more the papers print the threat of rate rises these days, the less chance they're coming.

So the more the papers print that rates are on the way down, the less chance it will happen.

Edited August 22, 2005 by Charlie The Tramp

[Guest Time 2 raise Interest Rates]

Don't hold your breath rents, BBC Business, wall street giant see oil rising.

Goldman Sachs US light crude will cost an average of $67 per barrel this year, $13.50 higher than their previous forecast.

Good to see you back posting. I was getting a bit concerned. I thought maybe you were thinking of doing a runner with my one'er.

[Time to raise the rents.]

So the more the papers print the that rates are on the way down, the less chance it will happen. 

<{POST_SNAPBACK}>

Nice twist CTT, but not my message.

Don't hold your breath rents, BBC Business, wall street giant see oil rising.

Goldman Sachs US light crude will cost an average of $67 per barrel this year, $13.50 higher than their previous forecast. 

Good to see you back posting.  I was getting a bit concerned.  I thought maybe you were thinking of doing a runner with my one'er.   

<{POST_SNAPBACK}>

I have £100 with your name on it. I hope you also have the same, because from my angle it could go either way from here.

[Guest Time 2 raise Interest Rates]

I have £100 with your name on it. I hope you also have the same, because from my angle it could go either way from here.

<{POST_SNAPBACK}>

Sertainly do, although I feel the pendulum has swung in my favour of late.

Especially with the major Banks withdrawing their short term fixed deals, and

putting them up for new customers.

[Guest prudence]

Sertainly do, although I feel the pendulum has swung in my favour of late.

Especially with the major Banks withdrawing their short term fixed deals, and

putting them up for new customers. 

<{POST_SNAPBACK}>

Any reduction in IRs will not now change the downward momentum of the market. People are now focussed on overall price which determines the size of debt, not current monthly affordability. The sentiment of the market has changed completely. Note what happened to the Japanese market as IRs fell; the market also fell...

[Time to raise the rents.]

Sertainly do, although I feel the pendulum has swung in my favour of late.

Especially with the major Banks withdrawing their short term fixed deals, and

putting them up for new customers. 

<{POST_SNAPBACK}>

Who was it at the BOE that pointed out 2 meetings ago that if lower rates aren't delivered, that the benefits in the market (of expected lower rates) would quickly disappear?

See what I'm getting at then?

[Time to raise the rents.]

Any reduction in IRs will not now change the downward momentum of the market.  People are now focussed on overall price which determines the size of debt, not current monthly affordability.  The sentiment of the market has changed completely.  Note what happened to the Japanese market as IRs fell; the market also fell...

<{POST_SNAPBACK}>

Prudence, for once you seem to have cracked the big one!

Only dramatically lower rates will save the UK economy!!!!!!!

[Guest Charlie The Tramp]

Only dramatically lower rates will save the UK economy!!!!!!!

Maybe the powers that be do not want to save the economy.

Time for the spring clean of debt awaiting the bust.

[Time to raise the rents.]

And I would alsolike to point out Prudence that Tokyo & Osaka are more expensive cities to buy property in than London.

Funny that, they must have been in a bubble, since they've fallen so far, yet are still so far ahead.

[Guest Time 2 raise Interest Rates]

We can debate this one 'til the cows come home. I can understand it's not just about sterling and oil, and we've all got our own take on where interest rates are going, but in my opinion, the next move in interest rates will be up. And yes, before you all come back with why don't you put your money where your mouth is, I have done so. Not only with TTRTR, also through various other means.

[CapeFear]

The irrational perma-bears can't have it both ways.

Either you believe the economy is headed for the rocks, or you believe the interest rates are going up. Not both.

I personally side with Mr Bootle in believing in the former, so I completely agree with TTRTR - the rates are coming down, and may well break through 3.5% by the end of 2006.

Although if for some reason anyone thinks that falling interest rates somehow undermine the "chances" of a severe correction in house prices, they should read books by Robert Schiller and John Kenneth Galbraith.

I quotemarked "chances" there because the last Titanic lifeboat has long since departed... This is the best article yet, ramming home the mentality shift ("1000 a week off til it sells"): http://www.thisislincolnshire.co.uk/displa...wsNodeId=156133

[Guest Time 2 raise Interest Rates]

Don't read too much in to this consumer slow down nonsense. The girlfriend went to IKEA, Thurrock today with a friend (just like to add the friend was buying), anyway, after driving around the huge car park ended up having trouble finding a space in the overflow car park. Consumer slow down, the Brits don't know what one is.

[oracle]

Maybe the powers that be do not want to save the economy.

Time for the spring clean of debt awaiting the bust.

<{POST_SNAPBACK}>

I'm inclined to agree with you!...this might sound bizarre,but I have a theory that the global economies are "farmed",in much the same way an arable farmer would rotate crops,and every so often one needs to be left fallow in order to recouperate.

...if this is the case then UK is buggered!...Japan is picking up so I suspect EUROZONE+UK will get shafted!.....japan style!

[Time to raise the rents.]

Don't read too much in to this consumer slow down nonsense.  The girlfriend went to IKEA, Thurrock today with a friend (just like to add the friend was buying), anyway, after driving around the huge car park ended up having trouble finding a space in the overflow car park.  Consumer slow down, the Brits don't know what one is.

<{POST_SNAPBACK}>

Ikea is like my HMO's. They're much better value than the crap that's on offer out there, which is what keeps my places full & Ikea que's long.

[CapeFear]

Only dramatically lower rates will save the UK economy!!!!!!!

Not even them, I fear.

Even higher credit limits and income multiples could have done, but it seems the banks have belatedly drawn in the horns... The next few years won't be pretty for the "Anglo-Saxon" economies.

[Guest Charlie The Tramp]

Either you believe the economy is headed for the rocks, or you believe the interest rates are going up. Not both.

Well being an observer of the UK economy the past forty years, Inflation, recession, and high IRs went hand in hand.

But of course it`s different this time NuLabour are in power and the magician will buck the trend.

[Guest Time 2 raise Interest Rates]

Ikea is like my HMO's. They're much better value than the crap that's on offer out there, which is what keeps my places full & Ikea que's long.

<{POST_SNAPBACK}>

Not my favourite way of posting this, as I have no proof to add, and you're relying on my word, but my brother's wife works at Bluewater shopping centre. We talk maybe once a week, before long I always get round to asking him as he picks her up most nights, is it busy there, and nine times out of ten, he replies 'packed'. That to me says more than any newspaper article or whinging retailer. But like I say we'll have to wait and see what the next move is.

[Rapid Descent]

Could this be one of the reasons behind unexpected increased inflation:

UK Exports Surge

Certainly sounds like a reason not to cut rates any further to me!