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Bloomberg... B Of E Will Raise Interest Rates 3 Times This Year...

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http://www.bloomberg.com/news/2011-02-01/bank-of-england-will-raise-rate-three-times-this-year-to-1-25-niesr-says.html

BOE Will Raise Rate Three Times This Year, Niesr Says

The Bank of England will raise its key interest rate three times this year to prevent a surge in consumer prices from getting entrenched in the economy, the National Institute of Economic and Social Research said.

The London-based group, whose clients include the U.K. Treasury and the central bank, sees the benchmark rate increasing to 1.25 percent by the end of 2011, compared with an October forecast for the rate to rise once to 0.75 percent. It also changed its 2011 inflation forecast, raising it to 3.8 percent from 2.8 percent.

Consumer-price growth accelerated to 3.7 percent in December, almost double the central bank’s 2 percent target. That prompted Martin Weale, a former Niesr director, to join Andrew Sentance in voting for a rate increase at the Monetary Policy Committee’s Jan. 13 meeting, as they expressed concern that inflation may persist above the target.

“We don’t want the anchor to drift given what’s happening to oil prices, because then rates really will have to go up quite sharply to bring inflation back down to target,” Simon Kirby, a research fellow at Niesr, said in an interview after a press conference in London yesterday. “The first move could come as soon as May.”

The pound rose 0.3 percent and was trading at $1.6058 at 8:30 a.m. in London. Brent crude oil rose above $100 a barrel yesterday for the first time since 2008, feeding inflation pressures at a time when a sales-tax increase introduced last month is also stoking the rate of price gains.

Growth Forecast

Niesr sees inflation slowing to 1.8 percent in 2012 as the government’s fiscal tightening weighs on the economy. It cut its 2011 growth forecast to 1.5 percent from 1.6 percent, and its 2012 projection to 1.8 percent from 2 percent. Unemployment will rise to 8.7 percent this year from 7.9 percent in 2010, it said.

The institute said pressure on the economy and the labor market from the fiscal squeeze suggests the government should consider easing its planned spending cuts and tax increases.

Pushing back its aim of virtually eliminating the budget deficit to 2016 would give the Bank of England greater scope to raise interest rates to contain inflation, Niesr said. Policy makers may have to postpone an increase if first-quarter gross- domestic-product data shows the recovery faltered, it said.

The economy shrank 0.5 percent in the fourth quarter, the most in more than a year, as the coldest December in a century kept shoppers home and stranded travelers. The Office for National Statistics said the economy would have stagnated had it not been for the snow.

‘Hands Are Tied’

“There’s a risk growth could be significantly weaker, and in that case the Bank of England’s hands are tied,” Kirby said. “The reason why the U.K. economy is so weak is in part because of fiscal policy.”

Several quarters of contraction may force policy makers to resume bond purchases, though for now Niesr expects no more to be made, Kirby said. The bank held its bond-purchase plan at 200 billion pounds ($321 billion) in January. While Weale and Sentance voted for higher rates, Adam Posen kept up his push for more stimulus.

“It’s a delicate balancing act the bank has to make,” Kirby said.

I wonder if their forecast will prove right? :unsure:

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Usually large research organisations like that take some time doing a research and publishing a report. I wonder if they had time to take the Q4 2010 GDP numbers in consideration.

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I keep seeing May being suggested as the date for a first rise. Can someone smarter than I let me know why that particular month is so significant? Is it because of the new tax year???

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I keep seeing May being suggested as the date for a first rise. Can someone smarter than I let me know why that particular month is so significant? Is it because of the new tax year???

I have guestimated before that the BoE may try to wait (inflation allowing) for the GDP numbers for Q1, that will be published on the second half of April. Hence at their meeting in the beginning of May they will have a lot of the necessary info for their decision. Maybe?

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I have guestimated before that the BoE may try to wait (inflation allowing) for the GDP numbers for Q1, that will be published on the second half of April. Hence at their meeting in the beginning of May they will have a lot of the necessary info for their decision. Maybe?

Also ready-ing the public for an initial increase by getting the word out there?

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I keep seeing May being suggested as the date for a first rise. Can someone smarter than I let me know why that particular month is so significant? Is it because of the new tax year???

Maybe because May is one of the months when they have their quarterly post decision press conference and report, allowing them apply whatever spin they feel necessary, i.e. "don't get too excited savers or we'll put it right back down again". However February fits this bill too and has got to be a fair possibility given that May may well be too late.

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Maybe because May is one of the months when they have their quarterly post decision press conference and report, allowing them apply whatever spin they feel necessary, i.e. "don't get too excited savers or we'll put it right back down again". However February fits this bill too and has got to be a fair possibility given that May may well be too late.

I think February has to be off the cards after the recent GDP figures, unless the headline inflation figures they see before we do is hitting 5% plus.

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I keep seeing May being suggested as the date for a first rise. Can someone smarter than I let me know why that particular month is so significant?

It's my birthday... :rolleyes:

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I think February has to be off the cards after the recent GDP figures, unless the headline inflation figures they see before we do is hitting 5% plus.

+2

If the BOE raise rates this month then we know there is one hell of an unexpected inflation figure coming out the week after.

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+2

If the BOE raise rates this month then we know there is one hell of an unexpected inflation figure coming out the week after.

I wouldn't say that outcome is beyond the realms of possibility. One in four or may be one in five chance?

Edited by rantnrave

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I have guestimated before that the BoE may try to wait (inflation allowing) for the GDP numbers for Q1, that will be published on the second half of April. Hence at their meeting in the beginning of May they will have a lot of the necessary info for their decision. Maybe?

+1

They will wait till the next GDP figures are released If they are negative as well interest rate won't move. There is no way they will increase rates if we go back into recession.

Edited by gf3

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not a chance in hell of interest rate rising. It would kill indebted UK households and cause a 2nd banking crisis.

It will not happen

Real interest rates will be -6% by the end of 2011

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not a chance in hell of interest rate rising. It would kill indebted UK households and cause a 2nd banking crisis.

It will not happen

Real interest rates will be -6% by the end of 2011

Small (0.25%) rises won't "kill indebted UK households and cause a 2nd banking crisis".

It is all a matter of degree.

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not a chance in hell of interest rate rising. It would kill indebted UK households and cause a 2nd banking crisis.

It will not happen

Real interest rates will be -6% by the end of 2011

Agree, why would the bankers increase the intrest rate, not only worry of 2nd banking crsis

Increase intrest rate reduce their profit margin, meaning reduce their bonus.

The chance of increasing the intrest rate is the same chance of an average UK person go to their boss and ask for a pay reduce. It could happen, only if they are at the risk of losing their job.

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This is when the inflation report is out. There is one in feb but there's no chance they're hiking next month, unless the politicians/banks tell them to.

As to the NIESR 'report' - all they're doing is moving with market expectations (after the GDP data and now back with the manufacturing PMI) - currently a hike in May/June, Sep and Dec. Genius.

When May.June comes around you might find inflation starts to fall so they carry on at 0.5. have a look at this

http://www.bbc.co.uk/news/business/market_data/currency/11/12/twelve_month.stm

The pound was weak in May,June a stronger pound might curb inflation

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