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Guardian LINK

A continuing commodity price boom fuelled by growth in emerging markets would push the MPC into a 'not nice' rate hike, Charles Bean says.

The Bank of England may have to put up interest rates if the commodity price boom continues, deputy governor Charles Bean warned today.

He pointed to "substantial rises" in food and oil prices in recent months. North Sea Brent Crude hit $102.02 a barrel this morning, amid concerns that the ongoing riots in Egypt could trigger regime change across the Middle East and North Africa, and metal prices are at record highs.

While the central bank expects inflation, currently at 3.7%, to fall back to its 2% target "providing there aren't further shocks," Bean said the economic boom in some emerging markets could drive commodity prices higher.

"It is one of the risks that continuing strong growth in emerging markets may mean a tendency for commodity prices to continue to rise relative to the general prices of goods and services," Bean told the Western Mail in an interview.

"On the other hand we would not expect the rate of increase to be as rapid as it has been over the last six months," he added.

Bean warned that if commodity prices did stay high, "we may well have to respond to that by keeping domestically generated inflation lower".

The deputy governor was asked about the impact on consumer confidence if interest rates were raised from their historic low of 0.5%. "Whether it dents confidence depends on why it happens – if we raise rates because the economy is growing quite strongly and the recovery is entrenched, then that's a nice rise in interest rates and unemployment will be coming down," Bean said.

"On the other hand, if it is in response to a spike in oil prices that we think is likely to persist and inflation is becoming embedded, that is not a nice reason to raise interest rates, but we would have to do it," he added.

Asked about the shock 0.5% fall in GDP in the fourth quarter of last year, he said the central bank had expected growth to be somewhat weaker than it had been earlier in the year, and noted that the Office for National Statistics had estimated growth at "flattish" levels without the weather impact.

His comments came as fellow rate-setter Andrew Sentance, who has voted for higher rates since last June and was joined in his call for a quarter-point increase last month by Martin Weale, warned that the Bank risked losing its inflation-fighting credibility if it did not act soon.

"The longer we delay [monetary tightening] the more there is a risk that interest rate rises when they come will have to be larger, and then there will be a bigger risk of a shock to confidence," Sentance told City AM.

"We need to be prepared to look through fluctuations in GDP growth when we're recovering from recession: growth figures are never linear and smooth in recoveries."

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Guardian LINK

A continuing commodity price boom fuelled by growth in emerging markets would push the MPC into a 'not nice' rate hike, Charles Bean says.

The Bank of England may have to put up interest rates if the commodity price boom continues, deputy governor Charles Bean warned today.

He pointed to "substantial rises" in food and oil prices in recent months. North Sea Brent Crude hit $102.02 a barrel this morning, amid concerns that the ongoing riots in Egypt could trigger regime change across the Middle East and North Africa, and metal prices are at record highs.

While the central bank expects inflation, currently at 3.7%, to fall back to its 2% target "providing there aren't further shocks," Bean said the economic boom in some emerging markets could drive commodity prices higher.

"It is one of the risks that continuing strong growth in emerging markets may mean a tendency for commodity prices to continue to rise relative to the general prices of goods and services," Bean told the Western Mail in an interview.

"On the other hand we would not expect the rate of increase to be as rapid as it has been over the last six months," he added.

Bean warned that if commodity prices did stay high, "we may well have to respond to that by keeping domestically generated inflation lower".

The deputy governor was asked about the impact on consumer confidence if interest rates were raised from their historic low of 0.5%. "Whether it dents confidence depends on why it happens – if we raise rates because the economy is growing quite strongly and the recovery is entrenched, then that's a nice rise in interest rates and unemployment will be coming down," Bean said.

"On the other hand, if it is in response to a spike in oil prices that we think is likely to persist and inflation is becoming embedded, that is not a nice reason to raise interest rates, but we would have to do it," he added.

Asked about the shock 0.5% fall in GDP in the fourth quarter of last year, he said the central bank had expected growth to be somewhat weaker than it had been earlier in the year, and noted that the Office for National Statistics had estimated growth at "flattish" levels without the weather impact.

His comments came as fellow rate-setter Andrew Sentance, who has voted for higher rates since last June and was joined in his call for a quarter-point increase last month by Martin Weale, warned that the Bank risked losing its inflation-fighting credibility if it did not act soon.

"The longer we delay [monetary tightening] the more there is a risk that interest rate rises when they come will have to be larger, and then there will be a bigger risk of a shock to confidence," Sentance told City AM.

"We need to be prepared to look through fluctuations in GDP growth when we're recovering from recession: growth figures are never linear and smooth in recoveries."

Another example of saying the right thing to calm the market, but we all know actions speak louder then words

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Even if bank rates go up 1% it will still be cheaper to remain on a tracker. The banks current scare tactics like the Barclays railroad advert is just that, playing on peoples fears.

The BoE I dont think could put rates up too much becuase it would kill any growth.

+1

I don't think rates will be going up any time soon. But what I would like to Know is why they keep wheeling these people out. I mean did Charles Bean just ring the Guardian and make this statement or was it a email did he just pop in to the Guardian office on his way to work. I have heard two announcements come out of the BofE saying "when interest rates go up they will go up quickly".

I think It's like that child's game Simon says unless it's Myrvyn King that says it, it's just noise.

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The Bank of England may have to put up interest rates if the commodity price boom continues, deputy governor Charles Bean warned today.

Whaaat! Rate increases are unheard of.

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"we may well have to respond to that by keeping domestically generated inflation lower".

That's the nub.

Even when the BOE eventually raise rates inflation will still remain rampant simply because much UK inflation is externally driven. Inflation is going crazy in China. The UK is and will remain heavily impacted by this.

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The BOE want inflation in the economy but not wage inflation. Most companies are making record profits. There's a wide scale ruse going on in the private sector to scare people into being grateful that they've simply got a job so that they don't start demanding inflation busting pay rises.

There won't be a decimating of public sector jobs just primarily voluntary redundancies and less staff replacement.

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Guest sillybear2

I think we're missing the elephant in the room here, why not drawdown QE first? If the bath is over flowing the first thing you need to do is turn off the taps. Remember QE isn't a single dollop, it's an on going process, the longer that £200bn is left out there the more the multiplier takes effect. They call it high-powered money for a reason.

They need to immediately withdraw the Special Liquidity Scheme too, if the banking cartel is now profitable enough to pay out its surpluses in the form of bonuses then they're also rich enough to fund themselves commercially in the markets. I dunno how they can justify another 12 months of backdoor support at the expense of the public treasury.

More begging :-

http://www.dailymail.co.uk/money/article-1348451/Santander-UK-boss-We-need-liquidity-helping-hand.html

So why not retain some capital luv, ya know, collectively pay yourself less? Anyone can run a business where risks and losses are systematically transferred to the tax payer or monetary authority and profits are skimmed off in private pay and bonuses. Who wouldn't want such an arrangement to end?

Merv wanted the banks to recapitalise themselves by stealth by arbitraging the yield curve, direct bailouts are politically embarrassing for all concerned because they make the national accounts look ugly, the problem is the capital is now being drained off. They gave them a chance to repair their balance sheets but they've just turned it into another looting opportunity, the life support is now being treated as a right, part of business as usual. The authorities are a bit dozy, aren't they?

Cameron thinks he has no leverage over the bankers, if they cannot come to a voluntary agreement with Project Merlin he simply needs to tell them to off the f**k back to the City and phone up the BoE and instruct them to end all public support 8am the next morning. No profits = no bonuses, simple. He could even get them to mark to market, then everyone would be forced to admit they haven't made any paper profits at all, quite the opposite.

No wonder the bankers don't want to be shackled to their own bank shares, they know exactly what's in their dog food, without public support they have a negative value.

Edited by sillybear2

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It wont reduce inflation, only raise costs, especially mortgage rates!

Roll on rate rises!

Edited by Earthling10

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It wont reduce inflation, only raise costs, especially mortgage rates!

Roll on rate rises!

The inflation is coming from the aritficial demand from their own actions, they are printing money from nowhere, destroying purchasing power (and sterling value) and then pretending it is a far east growth problem.

Total liars and bullshitters.

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They need to pretend that they are considering the possibility of raising rates but they are not seriously thinking about it.

Higher inflation is not making them think about raising rates but it is stopping them from printing more money which is what they really want to do.

If CPI/RPI drops for 1 month I bet they will jump on it as an excuse to QE more incase they don't get the chance again as inflation goes up again.

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Guest sillybear2

They need to pretend that they are considering the possibility of raising rates but they are not seriously thinking about it.

Higher inflation is not making them think about raising rates but it is stopping them from printing more money which is what they really want to do.

If CPI/RPI drops for 1 month I bet they will jump on it as an excuse to QE more incase they don't get the chance again as inflation goes up again.

Right, so they can be persistently over target for 40 months and that's fine, but if the rate of increase drops back for just a month or two all of a sudden we're in a deflation trap and it's printy time again. Why doesn't the MPC just admit they're running a ponzi scheme and be done with it?

How the hell did we end up with such an absurd system? Only a bunch of lunatics would design something reliant on exponential growth.

http://www.guardian.co.uk/commentisfree/cif-green/2011/feb/01/70-months-counting-climate-change

Edited by sillybear2

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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