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Why On Earth Would The B O E Raise Rates

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There is lots of talk recently about raising rates.

The only incentive to increase rates as far as I can see is to moderate inflation, but inflation isn't been driven by a massive spend fest with retailers going out for all they can get, it's driven by high oil prices and a weak pound. A weak pound would be a reason to raise rates, but the pound would only get weaker if it looks like UK PLC cannot pay it debts. Lots of spending cuts is going to harm consumer spending even more, so it seems as UK PLC is teetering on the brink.

The BOE would be mad to raise rates at the moment - who benefits apart from those of us wanting house prices lower (me included)?

Edited by correction

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There is lots of talk recently about raising rates.

The only incentive to increase rates as far as I can see is to moderate inflation, but inflation isn't been driven by a massive spend fest with retailers going out for all they can get, it's driven by high oil prices and a weak pound. A weak pound would be a reason to raise rates, but the pound would only get weaker if it looks like UK PLC cannot pay it debts. Lots of spending cuts is going to harm consumer spending even more, so it seems as UK PLC is teetering on the brink.

The BOE would be mad to raise rates at the moment - who benefits apart from those of us wanting house prices lower (me included)?

There's only one answer: to attempt to keep inflation 'on target'.

Now, you might argue that the state of the economy should trump the inflation target, which is a fair point. But what is the point of having a target if you are going to make no attempt to meet it?

The inflation target is slowly being exposed as a sham. Every month Merv writes to Osborne: 'Dear Osborne, inflation is above target again, this was unexpected, in fact it's even worse than last month, which was unexpected too, I'm not going to do anything though cos it will be back on target by this time next year, love Merv'

And Osborne writes back saying 'Dear Merv, fair enough, it's a complicated thing this economics business, but you seem to have it all in hand. Keep up the good work, love Osborne'

So at which point do we try to do something about rising inflation? 5%? 10%? 25%?

It'd be nice to know.

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There is lots of talk recently about raising rates.

The only incentive to increase rates as far as I can see is to moderate inflation, but inflation isn't been driven by a massive spend fest with retailers going out for all they can get, it's driven by high oil prices and a weak pound. A weak pound would be a reason to raise rates, but the pound would only get weaker if it looks like UK PLC cannot pay it debts. Lots of spending cuts is going to harm consumer spending even more, so it seems as UK PLC is teetering on the brink.

The BOE would be mad to raise rates at the moment - who benefits apart from those of us wanting house prices lower (me included)?

There were once a group who would have benefitted, however Mervyn King had them quietly destroyed. You will never hear mention of them but I assure you they were once a thriving and respectable element in our society - google the word "savers".

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We know at what point they'll react the point where the proles demand more money as this is evil inflation.

we've already reached that point.

of course they have to stop inflation, but if you do that you have to run a sensible economy that pays for its self rather than a ponzi scheme where debt is wealth.

Don't worry, magic growth will save they day.

My prediction is that interest rates are going to go sky wards house prices are going to head towards the floor and unemployment is going of the scale.

The national debt and deficit are going to get worse and labour will win the next election by a land slide (if it's in 4 years).

After that, or maybe before, we will go all Irish and Greek.

Or maybe not.

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We know at what point they'll react the point where the proles demand more money as this is evil inflation.

Surely the Market might react at some point too?

It would certainly react if they explicitly dropped the inflation target.

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we've already reached that point.

of course they have to stop inflation, but if you do that you have to run a sensible economy that pays for its self rather than a ponzi scheme where debt is wealth.

Don't worry, magic growth will save they day.

My prediction is that interest rates are going to go sky wards house prices are going to head towards the floor and unemployment is going of the scale.

The national debt and deficit are going to get worse and labour will win the next election by a land slide (if it's in 4 years).

After that, or maybe before, we will go all Irish and Greek.

Or maybe not.

Sorry, when you say 'we've already reached that point' can you remind me of when the angry hoards took to the streets of London demanding more money? I seem to have missed that one!

The students have had the best go at Civil unrest so far and a load of them weren't even old enough to vote yet.

Some way to go before the revolution yet I fear!

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Surely the Market might react at some point too?

It would certainly react if they explicitly dropped the inflation target.

can I just say I hate the term 'the market' it is just a bunch of con men in the city.

I would rather say that our trading partners would lose confidence in the value and dependability of our currency.

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Sorry, when you say 'we've already reached that point' can you remind me of when the angry hoards took to the streets of London demanding more money? I seem to have missed that one!

The students have had the best go at Civil unrest so far and a load of them weren't even old enough to vote yet.

Some way to go before the revolution yet I fear!

No but 'workers' are demanding larger 'cost of living' pay rises.

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No but 'workers' are demanding larger 'cost of living' pay rises.

They're not getting them though are they? Or at least not according to the wage inflation stats.

Perhaps the next set of figures will show a jump in wage inflation, I won't hold my breath...

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So at which point do we try to do something about rising inflation? 5%? 10%? 25%?

The point whereby the BoE staff cannot keep grabbing more and more inflation linked pension funds or whatever they use to benefit from the inflation. Since they can do this even into the depths of hyperinflation they will continue until a hyperinflationary uber collaspe.

Take Bob Mugabe for instance, he's fine he has a 5 million £ house in HK and has plenty of money while Zimbabwe starves. This is where the BoE governors will be in 1-2 years time when real UK inflation is 2500% an hour. Falsified CPI index will be 4% however. And useful idiots will point out the massive deflationary pressures which simply don't exist.

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Sorry, when you say 'we've already reached that point' can you remind me of when the angry hoards took to the streets of London demanding more money? I seem to have missed that one!

The students have had the best go at Civil unrest so far and a load of them weren't even old enough to vote yet.

Some way to go before the revolution yet I fear!

People won't revolt because effectively they know the social contract. I.e. we are bullwhipped stealthly and robbed at each and every turn and accept it so that we do not get whipped all of the time. If we kick up a fuss then the gloves come off and the hidden face of fiat based society is unleashed upon the general chattels of the state (the people).

All of those anti terror laws were designed for such a pupose, the EU constitution which reintroduced the death penalty was specifically for this purpose. WHEN not if the police fire into crowds of protestors the BBC will cover for the police. If more people get angry simply exterminate an entire town and televise it. The people will shuffle off quietly home.

The protestors in China in 89 were brave and would run a short distance only to be gunned down again and again. Then the exterminations of dissidents occured and they've kept quiet for 21 years.

Hell in the UK if eastenders or Corination street was threatened to be banned the people would all fall into line and people without a TV licence would be given free doses of Zyklon.

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There is lots of talk recently about raising rates.

The only incentive to increase rates as far as I can see is to moderate inflation, but inflation isn't been driven by a massive spend fest with retailers going out for all they can get, it's driven by high oil prices and a weak pound. A weak pound would be a reason to raise rates, but the pound would only get weaker if it looks like UK PLC cannot pay it debts. Lots of spending cuts is going to harm consumer spending even more, so it seems as UK PLC is teetering on the brink.

The BOE would be mad to raise rates at the moment - who benefits apart from those of us wanting house prices lower (me included)?

I kind of agree with you on this, however;

1) Interest rates are the only tool the MPC have and they are under some pressure to raise rates and under criticism of being inept. They might raise a little to give themselves some self worth (unlikely reason I know)

2) Despite the massive debt, there are a lot of savers who would welcome this news (political justification)

3) If raising rates were to push up the value of sterling (big IF) then it would be a temporary restbite in terms of reducing the cost of oil imports.

4) Now the banks are back in profit, they can gift them a little less money and save some of the taxpayers/voters money. (if you don't believe in the NWO plan)

IMO, a small rise will not make a significant difference to the price of a house.

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There is lots of talk recently about raising rates.

The only incentive to increase rates as far as I can see is to moderate inflation, but inflation isn't been driven by a massive spend fest with retailers going out for all they can get, it's driven by high oil prices and a weak pound. A weak pound would be a reason to raise rates, but the pound would only get weaker if it looks like UK PLC cannot pay it debts. Lots of spending cuts is going to harm consumer spending even more, so it seems as UK PLC is teetering on the brink.

The BOE would be mad to raise rates at the moment - who benefits apart from those of us wanting house prices lower (me included)?

Exactly - it would be daft.

Killing the economy in the vague hope of strengthening Sterling, wouldn't be a good idea. Moreover, even if Sterling strengthened, it wouldn't be good for trade.

IMO, rate rises are the effect of a booming economy, not the cause. Those expecting rate rises to help are putting the cart before the horse.

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The BOE would be mad to raise rates at the moment - who benefits apart from those of us wanting house prices lower (me included)?

The BOE like all central banks, wants to infer that they are the controlling influence on markets and interest rates. The truth is a little different: if the international bond buyers decide not to play ball then gilt rates rise, followed comparably by the central bank minimum lending rates. Dig out the data - draw the graphs - you'll get the point. In short, the MPC is a follower and not a leader.

To be sure they can buy their own national bonds but when they are the only buyer ... it gets embarassing and is seen as a harbinger of hyper-inflation. Hardly a badge of competence for any central banker.

The BOE (MPC) know interest rate rises are on their way. The question is: will they be allowed to rise gently starting soon, or abruptly starting slightly later. History suggests that significant declines in house prices will start when the rates rise.

The problem is that having had a ZIRP policy for so long, many of the foreclosures that should have happened over the last few years have been postponed. As ZIRP ends, the backlog of foreclosures will arrive with a fanfare of political embarassment. Slow motion train crash.

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How come this is the first time rates have been so low? If you can just whack base rates down low to keep the economy on life support, why haven't they done it before?

I don't see how our economy can't not contract soon. The big problem is structural deficit. And they're going to cut it, so that'll be less money entering the economy. -0.6 percent already and they haven't even started.

So does that mean they can keep the rates down low?

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Rock and hard place. High(er) interest rates are theoretically supposed to ensure that malinvestment is reduced. If they keep the interest rate where it is, then there is a serious possibility of a gradual decline in the economy, where is the growth going to come from? Raise it and there is a serious possibility of crashing the economy quickly. The problem is really the disconnect between BOE interest rates and borrowing rates for the individuals/companies. It has become simply a case of a 'backdoor' bailout for the banks. Why carry that on when the banks are now back in profit?

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How come this is the first time rates have been so low? If you can just whack base rates down low to keep the economy on life support, why haven't they done it before?

Probably because this is a global recession.

I don't see how our economy can't not contract soon. The big problem is structural deficit. And they're going to cut it, so that'll be less money entering the economy. -0.6 percent already and they haven't even started.

The private sector can borrow just as much as the public sector can. If the private sector can take up the slack, there won't be 'less money entering the economy' - that's Brown-o-nomics. Relying on over more government borrowing is unsustainable and unethical too (the kids get the bill).

So does that mean they can keep the rates down low?

As the poster above said, the markets ultimately decide the long term rates. However, the BoE can manipulate the short term rates (and long term too, when using QE). I should think they will keep the rates low for as long as they can - IMO, that is until our global competitors are overheating. However, I doubt that will happen any time soon, as the developed world is already borrowed to the hilt.

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There is lots of talk recently about raising rates.

The only incentive to increase rates as far as I can see is to moderate inflation, but inflation isn't been driven by a massive spend fest with retailers going out for all they can get, it's driven by high oil prices and a weak pound. A weak pound would be a reason to raise rates, but the pound would only get weaker if it looks like UK PLC cannot pay it debts. Lots of spending cuts is going to harm consumer spending even more, so it seems as UK PLC is teetering on the brink.

The BOE would be mad to raise rates at the moment - who benefits apart from those of us wanting house prices lower (me included)?

Mervyn is making a mockery of the inflation target and shows no intention to raise rates of his own accord until he has produced inflation north of 20-30% over x years. He might raise rates by a few fractions of a point to prevent a currency panic but will make sure real rates remain well in negative territory until he has reached his objective.

The question is what could force him to raise rates:

- a currency panic, which is unlikely in the context of all currencies being actively debased simultaneously (well done world central banks, well played).

- or (in a round about way) banks may raise rates even though base rates stay at 0 because they are forced to by external rules (e.g. Basel 3) or because they have finally learned that if they don't implement sound banking rules they will disappear. Their benefactor (us taxpayers) are bust now so there is no second chance. My guess is the latter.

Edited by _w_

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Rock and hard place. High(er) interest rates are theoretically supposed to ensure that malinvestment is reduced. If they keep the interest rate where it is, then there is a serious possibility of a gradual decline in the economy, where is the growth going to come from? Raise it and there is a serious possibility of crashing the economy quickly. The problem is really the disconnect between BOE interest rates and borrowing rates for the individuals/companies. It has become simply a case of a 'backdoor' bailout for the banks. Why carry that on when the banks are now back in profit?

Is it the change in rates that fuels more borrowing or the absolute values? I would argue that it could well be the former - if we are saturated with debt at near zero rates, where is the scope to borrow and malinvest further?

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Is it the change in rates that fuels more borrowing or the absolute values? I would argue that it could well be the former - if we are saturated with debt at near zero rates, where is the scope to borrow and malinvest further?

I agree in that the direction of rate changes is the key, however, from our current possition, there is only one direction possible. The 'hope' of some, is that we are not saturated with debt and that there is more scope for increased/continued at same level borrowing. I know we all have VI on the issue, but what would your vote be for if you were on the MPC?

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I agree in that the direction of rate changes is the key, however, from our current possition, there is only one direction possible. The 'hope' of some, is that we are not saturated with debt and that there is more scope for increased/continued at same level borrowing. I know we all have VI on the issue, but what would your vote be for if you were on the MPC?

As someone who isn't an STR or a home owner, I am more concerned about keeping my job than anything else. In this respect, I suppose I am fairly neutral (most of us need jobs), with neither a strong need for rate rises or falls. If the BoE is trying to be neutral too, I would imagine that they are more bothered about the health of the economy and the banks, than home owners or savers. Therefore, I don't see why they would want to raise rates any time soon (at least not substantially - they may appease a few with a small rise).

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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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