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catmandu

Inflation (Again!)

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So the BoE are not controlling inflation through increasing interest rates because they want to promote growth in the economy.

The British Chamber of Commerce are reducing their growth rate because inflation is dragging on growth.

I'm used to conflicting economic reports, but surely the credibility of the BoE is in tatters.

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Yep all the economic forecasters/ thinktanks or what ever they are are stating high inflation for downgrading growth expectations recently. So keeping rates low is actually damaging the economy. It certainly is in my business. Raw material prices are crippling.

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I think you're all forgetting that low interest rates are a huge boost to the biggest contributor to GDP growth, namely government spending funded by low interest rate (for now) public debt.

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I think you're all forgetting that low interest rates are a huge boost to the biggest contributor to GDP growth, namely government spending funded by low interest rate (for now) public debt.

None of which has anything whatsoever to do with actual economic growth (as in the creation of actual wealth), of course.

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None of which has anything whatsoever to do with actual economic growth (as in the creation of actual wealth), of course.

Wait, you're saying cash-for-clunkers, nationalising failed banks, housing benefit rates that nobody in employment can compete with, paying unemployed people's mortgages for two years (or forever if they are retired), Andrea Hill, Virgin Rail subsidies, GPs on £200k, bombing Afghan villagers, single farm payments to multimillionaire landowners, winter fuel payments and free bus passes for people who spend their time cruising around the Caribbean, and new universities churning out thousands of media/tourism/sports/fashion studies "graduates" are poor value for money?

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So the BoE are not controlling inflation through increasing interest rates because they want to promote growth in the economy.

The British Chamber of Commerce are reducing their growth rate because inflation is dragging on growth.

I'm used to conflicting economic reports, but surely the credibility of the BoE is in tatters.

i don't think it is. I'm really fed up with the mantra increasing interest rates will reduce inflation. In the present situation it won't.

It's been explained more eloquently by other posters, my clumsy explanation is that increasing interest rates is a tool to suppress demand when there is under capacity in the economy. We presently have overcapacity clearly evidenced in the unemployment rate The official claimant count is believed to seriously understate the underlying rate by the way.

I don't see how suppressing demand even further is going to help.

Dig further into the inflation figures and analyse the items that are increasing in price, mainly essentials like food and oil. Other items are falling in price, consumer electronics, white goods, cars (if you disregard list prices and look at actual transaction prices), even house prices and rents.

The tax take is falling, despite the hike in VAT. There is other evidence around in front of your eyes, look at the empty shops on the high street. Look at the low level of construction taking place. Despite the BOE base rate being at an historical low it is not reflected in the rate charged by the banks for business loans, personal loans, overdrafts, credit card rates.

How will taking more money out of peoples pockets by increasing interest rates improve anything? The interest rate tool is inappropriate in the present situation. It's analogous to throwing water on a dying fire to bring it into life.

Edited by sleepwello'nights

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How will taking more money out of peoples pockets by increasing interest rates improve anything? The interest rate tool is inappropriate in the present situation.

Allowing interest rates to rise will take money out of the pockets of debtors and put it into the pockets of savers. That money doesn't just disappear.

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So the BoE are not controlling inflation through increasing interest rates because they want to promote growth in the economy.

The British Chamber of Commerce are reducing their growth rate because inflation is dragging on growth.

I'm used to conflicting economic reports, but surely the credibility of the BoE is in tatters.

If it is not the defacto issuer of a nations currency that sets inflation through the amount of credit available and by also setting the interest rate on said credit, then who is it?

I don't think you understand the system.

I think you will find that there is nothing English about the Bank of England, other than its address, and the people they choose to have to face the public.

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Allowing interest rates to rise will take money out of the pockets of debtors and put it into the pockets of savers. That money doesn't just disappear.

And what will they do with it with consumer confidence being so low? They'll probably carry on saving or spend it on essentials like food and oil. The very items that are inflating in price, so that will increase inflation in necessities. I don't see how it will reduce inflation

The corporate sector is awash with cash, they don't need more money, they need investment opportunities. With our economy being heavily biased towards consumer spending what company will invest into a depressed market?

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And what will they do with it with consumer confidence being so low? They'll probably carry on saving or spend it on essentials like food and oil. The very items that are inflating in price, so that will increase inflation in necessities. I don't see how it will reduce inflation

A big chunk of inflation has been brought on by the weakness of the pound - increase interest rates, pound gets stronger, imports get "cheaper". The BoE's "imported inflation" argument is such complete ******** - they've deliberately trashed the pound, food and oil imports went up in price - quelle surprise!

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i don't think it is. I'm really fed up with the mantra increasing interest rates will reduce inflation. In the present situation it won't.

It's been explained more eloquently by other posters, my clumsy explanation is that increasing interest rates is a tool to suppress demand when there is under capacity in the economy. We presently have overcapacity clearly evidenced in the unemployment rate The official claimant count is believed to seriously understate the underlying rate by the way.

I don't see how suppressing demand even further is going to help.

Dig further into the inflation figures and analyse the items that are increasing in price, mainly essentials like food and oil. Other items are falling in price, consumer electronics, white goods, cars (if you disregard list prices and look at actual transaction prices), even house prices and rents.

The tax take is falling, despite the hike in VAT. There is other evidence around in front of your eyes, look at the empty shops on the high street. Look at the low level of construction taking place. Despite the BOE base rate being at an historical low it is not reflected in the rate charged by the banks for business loans, personal loans, overdrafts, credit card rates.

How will taking more money out of peoples pockets by increasing interest rates improve anything? The interest rate tool is inappropriate in the present situation. It's analogous to throwing water on a dying fire to bring it into life.

You can either have gradual managed increases in interest rates now

Or large rapid increases later - take your pick.

And there are millions of savers who rely on interest for income - low interest rates take money from their pockets and severely reduce demand in the economy

while at the same time people with debt are paying it down - again resulting in reduced demand.

So low interest rates = reduced demand plus inflation - which is exactly what we are experiencing.

The BOE is playing a dengerous game - engineering inflation in order to effect real term cuts in government spending - the problem is, inflation can easily get out of control and once it does it is very difficult to regain control.

:blink:

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And what will they do with it with consumer confidence being so low? They'll probably carry on saving or spend it on essentials like food and oil. The very items that are inflating in price, so that will increase inflation in necessities. I don't see how it will reduce inflation

The corporate sector is awash with cash, they don't need more money, they need investment opportunities. With our economy being heavily biased towards consumer spending what company will invest into a depressed market?

The pound has been deliberately trashed in order to allow banks to rebuild their balance sheets and to cause 5% inflation which turns a 2 year public sector pay freeze into a real terms 10% cut.

If the government had just cut public sector pay by 10% there would have been riots in the streets

But engineering such a cut then blaming 'imported inflation' lets them nicely off the hook.

Personally I feel they should have just imposed a 10% cut.

:blink:

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The pound has been deliberately trashed in order to allow banks to rebuild their balance sheets and to cause 5% inflation which turns a 2 year public sector pay freeze into a real terms 10% cut.

Who trashed the pound?

Wasn't it those damned foreigners who made a realistic assessment of our economy?

Was their assessment really just based on the BOE base rate?

Edited by sleepwello'nights

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And there are millions of savers who rely on interest for income - low interest rates take money from their pockets and severely reduce demand in the economy

Even now I can get a monthly income of more or less 5% tax free from savings accounts. Not too bad with compared with 5 years ago. With a little bit more risk in corporate bonds I can get 50% more, thats 71/2. That's pretty much the rate I would have got with an annuity 5 years ago.

Savers can get a reasonable income if they put a bit of effort in to where they park their savings.

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Who trashed the pound?

Wasn't it those damned foreigners who made a realistic assessment of our economy?

Was their assessment really just based on the BOE base rate?

The pound was deliberately devalued - but again due to BOE 'independence' no one has had to take the political hit for this.

If base rate was higher the pound would strengthen and inflation would reduce

but inflation is being deliberately engineered IMO for the reasons I stated.

Dangerous game that is doomed to end in catastrophe and rocketing interest rates

:blink:

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And the Mail tell us that the BCC are also saying that interest rates will rise this August in order to "tame rampant inflation".

http://www.dailymail.co.uk/money/article-1392199/Rates-increase-August-says-BCC.html?ITO=1490

Rates will increase in August, says the British Chambers of Commerce

]Households will be clobbered by an interest rate rise this summer despite weaker than expected economic growth, business leaders warn today.

The Bank of England will raise rates for the first time in four years in August in a desperate effort to tame rampant inflation, the British Chambers of Commerce says in a report.

It will cause mortgage misery for many hard-pressed families already struggling to make ends meet. But it will be welcomed by savers, who have lost out since rates hit 0.5 per cent more than two years ago.

The report reckons rates will go up to 0.75 per cent in August, reach 1 per cent by the end of the year and hit 2.75 per cent by the end of 2012 – adding hundreds of pounds to monthly mortgage bills. It comes after Lloyds Banking Group warned that tens of thousands of its mortgage customers could face severe financial difficulty when rates rise.

Tim Tookey, the bank’s finance director, said that while higher rates could improve margins for the industry, any benefit would be offset by households struggling to afford mortgage repayments.

The BCC has downgraded its economic growth forecasts for this year and next.

In a blow to George Osborne, it says the economy will grow by 1.3 per cent in 2011 and 2.2 per cent in 2012, rather than the 1.4 per cent and 2.3 per cent forecast in March and 1.7 per cent and 2.5 per cent expected by the Treasury. But in a boost to the Chancellor, the BCC does not think there will be a double-dip recession and remains fully behind the austerity package.

‘A new recession will be avoided in spite of the tough deficit-cutting plan, and the recovery will gradually gather momentum,’ the report says.

‘The government must persevere with implementing its fiscal plan. Eliminating our structural deficit over the next few years remains a top policy priority.’

The BCC expects the economy to grow by just 0.3 per cent in each of the second and third quarters of this year before picking up to 0.6 per cent in the final quarter.

It calls on ministers to develop ‘a more effective growth strategy’ to support the £81bn of cuts to government spending and warns that borrowing will not fall as quickly as planned.

The BCC says unemployment will rise by 150,000 to 2.6million, or 8.1 per cent of the workforce, by this time next year – 50,000 less than previously expected.

David Kern, the BCC’s chief economist, said: ‘Our new forecast assumes that Bank Rate will start increasing in August.

‘Although we would prefer the monetary policy committee to wait until the fourth quarter, we believe British business will prove sufficiently robust to avoid a new recession.

‘But the MPC must act with great caution. Premature interest rate increases would be risky and could derail the fragile recovery.’

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Even now I can get a monthly income of more or less 5% tax free from savings accounts. Not too bad with compared with 5 years ago. With a little bit more risk in corporate bonds I can get 50% more, thats 71/2. That's pretty much the rate I would have got with an annuity 5 years ago.

Savers can get a reasonable income if they put a bit of effort in to where they park their savings.

You have to tie money up for 5 years to get a 5% return.

This is a poor bet IMO.

You will be able to get more than 5% on 1 year bonds before very long, again IMO.

:blink:

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You have to tie money up for 5 years to get a 5% return.

Nope stick it in M&S for 5 years, if you want it back before the expiration of the term the penalty is only £100. Reasonable to me.

How was the pound deliberately devalued?

The natural rate of interest is not simply a political decision. It reflects economic reality, that is supply and demand. The demand for credit is subdued, subduing it even more by increasing its price won't help.

Inflation in imported goods is not simply down to the fall in value of the pound against other currencies, it reflects the increased demand from growing economies.

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It's just noise. The economic model is fundamentally flawed, and this fact is inescapable.

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Inflation in imported goods is not simply down to the fall in value of the pound against other currencies, it reflects the increased demand from growing economies.

That may well be true, but if UK consumers are adjusting their spending habits to spend a higher proportion of their income on imported food and energy and a lower proportion on other things (haircuts, cinema tickets, rent) then food and energy should be increasing in pounds sterling and those other things should be decreasing in pounds sterling. The BoE is preventing the latter correction from happening, which is why everybody feels so squeezed.

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That may well be true, but if UK consumers are adjusting their spending habits to spend a higher proportion of their income on imported food and energy and a lower proportion on other things (haircuts, cinema tickets, rent) then food and energy should be increasing in pounds sterling and those other things should be decreasing in pounds sterling. The BoE is preventing the latter correction from happening, which is why everybody feels so squeezed.

You are assuming that barbers, BTLers, cinemas etc., aren't saddled with debt/operational overheads and have the profit margin available to slash prices to attract business.

What I think you'll find is many businesses are sailing too close to the wind to do this, hence they will instead be competing on the product/service they offer, rather than price. Therefore, if the public have less disposable income to pay for these goods/services because food and energy now cost more, it simply means that the businesses closest to the margin that offer the poorest service to the public will go bust (see all the empty shops these days). Leaving the public to use their competitors, who can now survive with prices unchanged because their customer base has expanded (they now have customers from the bust shops), even if the individual customer is visiting less frequently due to financial constraints.

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Who trashed the pound?

Wasn't it those damned foreigners who made a realistic assessment of our economy?

Was their assessment really just based on the BOE base rate?

I think it had a bit to do with the 200 extra billion they printed as well.

Fck the over indebted, raise the godamn rate!

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Nope stick it in M&S for 5 years, if you want it back before the expiration of the term the penalty is only £100. Reasonable to me.

Best M and S savings rate is 3.5% (3 yrs)

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  • 311 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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