Mpc's Martin Weale Wants Interest Rate Rise

[koala_bear]

Nice to see a second MPC member speaking out, thought we will soon be back down to 1 as Sentance's last meeting is April.

2-6-1 on the MPC.

Nice to see the BBC quoting someone sensible saying something sensible.

Bank of England's Martin Weale wants interest rate rise

Mr Weale warned that the recent rise in inflation could become self-perpetuating A member of the Bank of England's interest rate-setting committee says the central bank should start raising rates now to avoid a sharp rise later.

"[it would] protect us from a squeeze later on, needed to get people's inflation expectations back towards the 2% target," Martin Weale said.

He told the BBC that even with a rate rise, inflation would not fall quickly.

The Monetary Policy Committee member has joined colleague Andrew Sentance in voting for a rate rise since January.

The two economists are concerned by the recent run-up in inflation, boosted by commodity prices and the increase in VAT.

The Consumer Prices Index rose at an annual rate of 4% in January, twice the Bank of England's official target.

"I certainly wouldn't expect raising interest rates in the short term to bring the inflation rate rapidly back to target," Mr Weale told Radio 4's World at One programme.

Inflation could only be brought down quickly via a much more rapid rate rise, which he did not favour as he believed it would destabilise the economy.

Although inflation has been boosted in recent months by temporary factors, Mr Weale expressed concern that this could feed into people's expectations about future inflation, making price rises self-perpetuating.

"If businesses and people bargaining for wages expect high rates of inflation then there's a risk that they may build those expectations into their current behaviour," he said.

Edited February 21, 2011 by koala_bear

[fellow]

Mr Weale warned that the recent rise in inflation could become self-perpetuating A member of the Bank of England's interest rate-setting committee says the central bank should start raising rates now to avoid a sharp rise later.

Everyone knows they need to rise. What possible reason is there not to raise them now?

[TheCountOfNowhere]

Everyone knows they need to rise. What possible reason is there not to raise them now?

The banks would fail, society would collapse and your mates would be hung from bridges all round london ?

[long time lurking]

As for business`s putting up price`s to compensate for inflation I think its a bit late in the day for that ,I know a lot of people in the construction trades [plumbers/sparks /plaster`s ] and the like and they are all raising their rates due to the cost of materiel's and fuel

the cost of labour is also being increased by a few

[zebbedee]

Everyone knows they need to rise. What possible reason is there not to raise them now?

As they have robbed me for so long now I'm happy that they are going to leave it to late*, it just means that when they do finally cave in thet the rises will have to be sharp to save a run on sterling and house prices will collapse. You can argue that we'll all suffer then but hey they've fiddled while rome burned and I'm suffering on my savings now so at least all the home 'owners' will also have to partake of the pie

*Read as "have left it to late"

Edited February 21, 2011 by zebbedee

[fellow]

As they have robbed me for so long now I'm happy that they are going to leave it to late*, it just means that when they do finally cave in thet the rises will have to be sharp to save a run on sterling and house prices will collapse. You can argue that we'll all suffer then but hey they've fiddled while rome burned and I'm suffering on my savings now so at least all the home 'owners' will also have to partake of the pie

*Read as "have left it to late"

When will they have to raise rates and what will force them? If they don't have to raise rates with inflation at 4%, why would they have to raise rates if inflation was 40%?

[winkie]

As for business`s putting up price`s to compensate for inflation I think its a bit late in the day for that ,I know a lot of people in the construction trades [plumbers/sparks /plaster`s ] and the like and they are all raising their rates due to the cost of materiel's and fuel

the cost of labour is also being increased by a few

I noticed that the cost of labour went down in the last recession 89/93....I also noticed non essential work/improvements/purchases were put on a back burner....This time with the internet and more information at our finger tips to enable us to shop around, consumer reviews and best buys etc competition will be greater...prices will have to fall inline with available money .....interest rates should rise or else the only things we can buy will be the things we need to live....peoples savings will evaporate, and essential imports will carry on increasing.

[rantnrave]

When will they have to raise rates and what will force them? If they don't have to raise rates with inflation at 4%, why would they have to raise rates if inflation was 40%?

Conjure up any scenario where the UK's AAA rating was under threat if they didn't raise rates. They would go up at the next meeting...

[exiges]

2-6-1 on the MPC.

I still predict we'll have to wait until June before seeing any rise.

[Pent Up]

I still predict we'll have to wait until June before seeing any rise.

I'm sticking with my prediction of Q1 2011. which means next month is the month.

[fellow]

I'm sticking with my prediction of Q1 2011. which means next month is the month.

+1

They've given enough warning now.

[LJAR]

I would be surprised to go from 2-6-1 to a majority voting for a rise. give it until May/June I think.

banks are pushing up mortgage rates already just on the talk of rate rises.

[koala_bear]

I would be surprised to go from 2-6-1 to a majority voting for a rise. give it until May/June I think.

banks are pushing up mortgage rates already just on the talk of rate rises.

When Sentance goes after the april meeting I could easily see it going to 1-7-1 unfortunately.

[richc]

Mr Weale warned that the recent rise in inflation could become self-perpetuating A member of the Bank of England's interest rate-setting committee says the central bank should start raising rates now to avoid a sharp rise later.

Watching the price of crude oil and what's going on in the Middle East, I find it hard to see how the Bank of England haven't already left it too late. CPI will be hitting 5% and RPI will hit 7% in the next few months, and any credibility the BoE may have once had is now in shreds.

[Democorruptcy]

What price can I have that the first time they raise interst rates by 0.25% they also increase QE by £25bn?

[crash2006]

What price can I have that the first time they raise interst rates by 0.25% they also increase QE by £25bn?

.25% rise thats nothing but thats the rise that'll happen.

[caparn]

What price can I have that the first time they raise interst rates by 0.25% they also increase QE by £25bn?

In theory the creation of of money (by electronic printing) is done when interest rates can't be dropped any lower and it is also done when inflation is too low and there is a perceived risk of deflation. Increasing interest rates and also printing money would be something very difficult and contradictory for the BOE to justify.

If you read the Bank of England Inflation Report you will see that they also agree each month to keep the amount of government debt they have purchased from private banks at £200 billion. The government debt they buy is often very near maturity so as soon as it matures they have less than £200 billion in government bonds so they must buy more.

Does anyone know if this statement about keeping the amount of government debt at £200 billion is a sly way for them to keep perform QE without telling anyone just by creating more money to buy more bonds when the bonds they have already bought mature?

QE really is little different from what was being done in Zimbabwe. The Bank of England creating money to buy government debt is really exactly the same thing as printing money to finance government spending. The only difference being that the private bankers get make a profit out of it too by the increase in value of the bonds they are selling back.

Edited February 21, 2011 by caparn

[porca misèria]

What price can I have that the first time they raise interst rates by 0.25% they also increase QE by £25bn?

See what odds Ladbrokes will give you ....

[koala_bear]

In theory the creation of of money (by electronic printing) is done when interest rates can't be dropped any lower and it is also done when inflation is too low and there is a perceived risk of deflation. Increasing interest rates and also printing money would be something very difficult and contradictory for the BOE to justify.

If you read the Bank of England Inflation Report you will see that they also agree each month to keep the amount of government debt they have purchased from private banks at £200 billion. The government debt they buy is often very near maturity so as soon as it matures they have less than £200 billion in government bonds so they must buy more.

Does anyone know if this statement about keeping the amount of government debt at £200 billion is a sly way for them to keep perform QE without telling anyone just by creating more money to buy more bonds when the bonds they have already bought mature?

My reading of QE is that they will only start to unwind it after CGS and SLS have been repaid else the too much liquidity will have been sucked out of the system giving some of our banks greater difficulties.

[koala_bear]

What price can I have that the first time they raise interst rates by 0.25% they also increase QE by £25bn?

I've always thought that was quite an interesting solution as increased QE reducing IRs are not the same thing, thought they started one when they ran out of room with the other.

Increasing QE so as to counter any effect of increasing IRs on sterling wouldn't be beyond Merv and the mpc, but do we really need the increased liquidity and velocity that more QE would bring, I get the feeling it is a bit like pushing on string if they increase QE any more, i.e. it is hardly going to do anything effective.

The banks know what they need to off load and get out of and hopefully have plan to do it, QE is part of the solution to giving them the oportunity to do it in a calm manner (or if they didn't screw up, make loads of money!)

Edited February 22, 2011 by koala_bear

[Fairies Wear Boots]

I would be surprised to go from 2-6-1 to a majority voting for a rise. give it until May/June I think.

banks are pushing up mortgage rates already just on the talk of rate rises.

It doesn't work that way though does it? Swervin Mervin isn't voting for a cut now, but he acknowledges they'll need to do it shortly. It could be 2-6-1 next month and the month after and then suddenly (unexpectedly) it's 9 - 0. That's my take on it anyway. Although I do look at how many have voted for a rise to see if we're getting any closer. (Because at 4-5, you know it's coming pretty soon).

[caparn]

I've always thought that was quite an interesting solution as increased QE reducing IRs are not the same thing, thought they started one when they ran out of room with the other.

Increasing QE so as to counter any effect of increasing IRs on sterling would be beyond Merv and the mpc, but do we really need the increased liquidity and velocity that more QE would bring, I get the feeling it is a bit like pushing on string if they increase QE any more, i.e. it is hardly going to do anything effective.

The banks know what they need to off load and get out of and hopefully have plan to do it, QE is part of the solution to giving them the oportunity to do it in a calm manner (or if they didn't screw up, make loads of money!)

I think QE has already put too much money out there in the hands of the banks, that's what is causing inflation, (along with the low interest rates). The banks are currently using all the money they got from the sale of government bonds back to the bank to speculate in commodities which in itself is push up the price of commodities and causing more inflation.

Edited February 21, 2011 by caparn

[koala_bear]

I think QE has already put too much money out there in the hands of the banks, that's what is causing inflation, (along with the low interest rates). The banks are currently using all the money they got from the sale of government bonds back to the bank to speculate in commodities which in itself is push up the price of commodities and causing more inflation.

Half the amount would have had the desired effect without allowing them to speculate too much, the problem with QE is it's global and the Fed can't get enough of it so we don't have any choice in the matter as far as commodities are concerned

[Democorruptcy]

In theory the creation of of money (by electronic printing) is done when interest rates can't be dropped any lower and it is also done when inflation is too low and there is a perceived risk of deflation. Increasing interest rates and also printing money would be something very difficult and contradictory for the BOE to justify.

If you read the Bank of England Inflation Report you will see that they also agree each month to keep the amount of government debt they have purchased from private banks at £200 billion. The government debt they buy is often very near maturity so as soon as it matures they have less than £200 billion in government bonds so they must buy more.

Does anyone know if this statement about keeping the amount of government debt at £200 billion is a sly way for them to keep perform QE without telling anyone just by creating more money to buy more bonds when the bonds they have already bought mature?

QE really is little different from what was being done in Zimbabwe. The Bank of England creating money to buy government debt is really exactly the same thing as printing money to finance government spending. The only difference being that the private bankers get make a profit out of it too by the increase in value of the bonds they are selling back.

Aug 2010 Nadeem Walayat suggested they will do both together in about 6 months.

The Bank of England WILL RAISE INTEREST RATES AND PRINT MONEY - This is contrary to anything you will hear anywhere else as the consensus view is that QE and Zero interest rates are complimentary, they will NOT be as we move forward! Because the Bank of England Will have no choice but to attempt to DEFLATE PRICES whilst INFLATING the Economy to achieve this it MUST RAISE Short-term Interest rates WHILST KEEPING LONG-TERM interest rates low. To achieve this the Bank of England needs to BUY Bonds and Stocks whilst forcing demand for consumption and wage increases lower. This WILL become the consensus view AFTER the FACT, perhaps in 6 months time ? Just as the mainstream press is ONLY NOW, 9 months on, starting to slowly wake up to the Inflation Mega-trend with the likes of the FT only coming to conclusions on the Bank of England Inflation targeting very recently, something that I came to several years ago!

http://www.marketoracle.co.uk/Article22199.html

[caparn]

Aug 2010 Nadeem Walayat suggested they will do both together in about 6 months.

If they do both they will be accused of monetizing the debt. Something that will be politically unacceptable, cause uproar with the Chinese and a greater loss of confidence in the GBP.