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Raise Uk Interest Rates Says Oecd

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Not long to go now!

http://www.guardian.co.uk/business/2011/may/25/interest-rates-must-rise-oecd

Interest rates must be raised this year, OECD warns

The west's leading economic thinktank warned the Bank of England on Wednesday that it would have to start raising interest rates this year to prevent inflation taking hold in the UK.

In a downbeat assessment of the prospects for the economy, the Paris-based OECD said Threadneedle Street would have to steadily increase borrowing costs over the next 18 months despite the weakness of growth.

The OECD reiterated its support for the government's deficit-cutting strategy, but said George Osborne should remove exemptions on VAT in order to boost public spending on Britain's infrastructure.

And it said a full-break up of Britain's banks should remain an option even though the Independent Commission on Banking set up by the coalition has so far backed only more limited reform of the financial system.

Releasing its half-yearly Economic Outlook, the OECD predicted that the UK would continue to lag behind most other leading industrial nations as it recovered from the deep downturn of 2008-09. Growth is projected to be 1.4% in 2011, rising to 1.8% in 2012 - weaker than ministers are expecting.

The sluggishness of the economy will feed through into higher unemployment, which the OECD expects to rise from 7.9% of the workforce in 2010 to 8.1% this year and 8.3% in 2012

"Growth is projected to remain slow during 2011", the OECD said. "Public consumption and investment are set to fall significantly while household consumption is expected to remain subdued, reflecting falling real incomes and stagnant asset prices."

The report added, however, that the Bank of England's monetary policy committee would have to act before too long to curb inflation. With the government's preferred measure of annual cost of living increases currently standing at 4.5%, the OECD said the public's belief that inflation would remain high illustrated "concerns about the Bank of England's willingness to tolerate significant and persistent deviations" from the government's 2% target.

"A modest increase in interest rates should be taken during 2011 to stave off increases in inflationary expectations, which are already elevated. As the recovery gathers momentum in 2012, the pace of normalisation of interest rates should be stepped up."

The OECD said the government's mix of tax increases and spending cuts were needed to rein in the budget deficit, slow the build of the UK's national debt and maintain the confidence of financial markets.

"Nevertheless, consolidation measures should be implemented in a way that minimises the impact on short-term growth. Ending exemptions and increasing lower rates in the VAT system would increase efficiency and raise revenues that could be used to lessen cuts in infrastructure investment."

The thinktank also questioned whether the ICB's proposal to ringfence the retail operations of banks within wider financial groups went far enough. "A full break-up of banks and further increases in capital requirements should also remain options".

For the 34-nation OECD as a whole, the economic outlook report predicted growth of 2.3% in 2011, rising to 2.8% in 2012. While noting that the recovery was becoming "self-sustained and more broad based", the OECD pointed to significant downside risks including rising commodity prices, a sharp slowdown in China and the soveriegn debt crisis in the eurozone.

"All this suggests that the global crisis may not yet be over", said the OECD's chief economist Pier Carlo Padoan. He added that policymakers needed to address four big challenges - high unemployment, sustaining growth, repairing public finances and managing global imbalances.

"The global economy is exiting recession but is not returning to business as usual", Padoan said. "The post-crisis economy will have to deal with old and new challenges, while pursuing new, green and inclusive sources of growth."

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The best we'll get is a token 0.25% rise or maybe 2 if we're lucky.

The policy is to protect asset prices (and thus the banks) and inflate - I just can't see them changing course.

Osborne should have sacked King and the disbanded the MPC the moment he took office.

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The best we'll get is a token 0.25% rise or maybe 2 if we're lucky.

Spread out over the year.

That would take us to the dizzying heights of 1%.

Too draconian do you think?

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I still find it unbelievable how Merv can sit there and justify not raising rates.

Inflation runs rampant, but thats ok, as he's not employed to control inflation.........err. :blink:

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The best we'll get is a token 0.25% rise or maybe 2 if we're lucky.

The policy is to protect asset prices (and thus the banks) and inflate - I just can't see them changing course.

Osborne should have sacked King and the disbanded the MPC the moment he took office.

I agree wholeheartedly with the first two statements, but respectfully disagree with the third. After all, King is doing exactly as he is told by his paymasters, and when things turn nasty and there is a run on sterling which forces the BOE into a sudden large rate hike to calm markets, King will be the fall guy and will slip into obscurity with his (RPI-linked) pension. Osborne will have his inflation, but the blame will be taken elsewhere.

Flynn

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The west's leading economic thinktank warned the Bank of England on Wednesday that it would have to start raising interest rates this year to prevent inflation taking hold in the UK.

Yes, we wouldn't want inflation to take hold, better raise rates before that happens.

Oh, wait....

Inflation has taken hold..... and raising interest rates wouldn't have prevented it, nor would it reverse it, were they to rise now.

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OECD = underpants

When I hear Mystic Merv tell the nation that the central bank is raising rates, then I'll listen.

And if I ever hear him say the words, "We don't want to raise cut rates too soon in case we underovershoot the inflation target." I'll faint.

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Agreed.

Osborne has wasted a year.

Hes getting it in the neck politicaly, and STILL hasn't reversed, or even stopped, the direction of travel.

Sheep as a lamb George.

I wonder what Ed, the Marshmallow boy, made of that extra £2bn gap being discovered. Went a bit quiet there didnt he?

Meanwhile the train still hurtles towards a 2015 reset.

We are so ******d its almost funny.

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Can someone explain to me how raising interest rates in the UK would reduce inflation in the UK when most of the factors behind the rise are external (e.g. rising prices of imported commodities, including energy), caused by government (e.g. rise in VAT) or caused by profit-taking (e.g. fuel/energy)?

Wage inflation is currently 1.1% year on year.

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Blimey that's a dire forecast 8.3% unemployment in 2012

And thats the official amount, add undeclared and underemployment and it is probably 30-40%

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Can someone explain to me how raising interest rates in the UK would reduce inflation in the UK when most of the factors behind the rise are external (e.g. rising prices of imported commodities, including energy), caused by government (e.g. rise in VAT) or caused by profit-taking (e.g. fuel/energy)?

Wage inflation is currently 1.1% year on year.

Interest rates would affect exchange rates. Imports would become cheaper.

Wage inflation is between 2% (private sector) and 2.5% (public sector)

Edited by exiges

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Can someone explain to me how raising interest rates in the UK would reduce inflation in the UK when most of the factors behind the rise are external (e.g. rising prices of imported commodities, including energy), caused by government (e.g. rise in VAT) or caused by profit-taking (e.g. fuel/energy)?

Wage inflation is currently 1.1% year on year.

There's a very large pit of bad debt to fill, but the CBs are low on ammunition.

I expect commodities will take a bashing over the next year, before the insanity reasserts itself.

Meanwhile, Merv is hoping I'm right!

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Can someone explain to me how raising interest rates in the UK would reduce inflation in the UK when most of the factors behind the rise are external (e.g. rising prices of imported commodities, including energy), caused by government (e.g. rise in VAT) or caused by profit-taking (e.g. fuel/energy)?

Wage inflation is currently 1.1% year on year.

Because inflation is an increase in the money/credit supply. Prices rising are the symptom, not the cause of inflation.

http://www.amazon.co.uk/How-Economy-Grows-Why-Crashes/dp/047052670X/ref=sr_1_1?ie=UTF8&s=books&qid=1306351333&sr=8-1

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Can someone explain to me how raising interest rates in the UK would reduce inflation in the UK when most of the factors behind the rise are external (e.g. rising prices of imported commodities, including energy), caused by government (e.g. rise in VAT) or caused by profit-taking (e.g. fuel/energy)?

Wage inflation is currently 1.1% year on year.

Because low interest rates in the UK cause the value of the pound to fall which means imports cost more pushing up inflation.

Also if the Bank of England prints 200 million the pound falls which means we pay more for petrol, gas and food.

So in effect the Bank of England hasn't created 200 million pounds from thin air

it has effectively nicked 200 million pounds out of all our pockets.

So hang on tightly to that Snuggly Bear because interest rates are going to rise considerably over the next few years.

:blink:

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The base rate is the rate at which the bank of England pay interest to the banks for parking money with them isn't it?

That interest is pay by our tax's aren't they?

So if base rates go up more tax payers money goes to the savers.

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Why wouldn't they sell the gilts bought with QE first? Surely it is better to shred some printed money, rather than increase the base rate?

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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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