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Rates Must Rise Even If Recovery Falters, Says Bank Of England Policymaker Martin Weale

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http://www.telegraph.co.uk/finance/economics/8573616/Rates-must-rise-even-if-recovery-falters-says-Bank-of-England-policymaker-Martin-Weale.html

Mr Weale, a member of the rate-setting Monetary Policy Committee (MPC), told the Finance Directors' Strategy Meeting in London that an early move on rates is needed to preserve the Bank's inflation-fighting credibility and to give it more flexibility in the months ahead.

He also argued that taking some of the pain now might mean rates do not need to rise as fast as otherwise projected, providing an effective economic stimulus in the future.

The speech will position Mr Weale as the most hawkish member of the MPC since Andrew Sentance's term expired last month. He has voted for a quarter point rise to 0.75pc since January and has been joined by Spencer Dale, the Bank's chief economist. Mr Sentance wanted rates to rise to 1pc.

Mr Weale's comments come as the Office for National Statistics publishes inflation data for May on Tuesday. The key consumer prices index is expected to have been unchanged on April at 4.5pc, more than double the Bank's official 2pc target.

Mr Weale said he is concerned that "we have exceeded the inflation target in 34 out of the last 40 months".

"After such a record, the risks that expectations of above-target inflation will become entrenched must be greater than if our recent record were better," he added. "There is a strong case to pre-empt this risk rather than wait for it to materialise."

He acknowledged that "in the short term the performance of the economy will be weakened slightly" by raising rates despite warning that recent data already suggested "short term economic growth may be slightly weaker than we had hoped".

"But, if the underlying inflationary pressures are correctly judged, interest rates further in the future will be lower than is shown by the market profile and some stimulus to output is then likely," he added.

"An early increase makes it more likely that the inflation target can be met in two to three years time because it allows for greater subsequent flexibility... If the economy is extremely weak, interest rates can be reduced again."

His argument coincided with a bullish speech from Jean-Claude Trichet, president of the European Central Bank (ECB), who stressed: "We have seen in recent months upside risks to the outlook for price stability. The sharp increase in oil and other commodities has had a major impact on overall inflation.

"In these circumstances, the central bank must prevent increases in the prices of raw materials from being incorporated into the long-term inflation expectations, which could trigger second-round effects on wages and prices."

The ECB is expected to raise rates for the second time this year in July. In contrast to the Bank's record, Mr Trichet said the ECB had managed "a precision landing" against its 2pc target over the past 12 years

Looks like they've replaced Sentance with another Hawk :)

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Not replaced. Weale and Dale have been voting for a rise for a few months along with Sentance. The key vote is Broadbents, Sentances replacement.

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FUD.

Is this so that in 2 years, when IRs are still zero, the BOE can say that they were talking about wanting to put up IRs but that political pressure, bankers, aliens, lizard people or swiss cheese stopped them?

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What if we have entered a new stage where interest rates don't go back to 5-6% but stay at sub 3-4%?

Afterall interest rates have been falling for practically 25 years.

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With inflation being high and probably getting higher ( inflation falling in the future forget it ), rates should be today around 8.75%.

Nobody, Broadbent, You, Me .......anyone, should determine the correct rate. Only the market should do that. Central banks set the price of money will not produce a better result than a central authority determining the price of a pint of milk.

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With inflation being high and probably getting higher ( inflation falling in the future forget it ), rates should be today around 8.75%.

Hasn't Brazil just put rates up a fourth time?

I reckon rates should be around 7 to 8 for sure, for the UK

That poor man Weale, he might as well talk to a brick wall

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He also argued that taking some of the pain now might mean rates do not need to rise as fast as otherwise projected, providing an effective economic stimulus in the future.

He seems to be arguing for a rate rise so rates can stay lower for longer.

Not really a friend to some one that wants high (normal) rates again.

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David Kuo from motley fool agrees with him (today program radio 4).

Personally I think the pound needs to weaken. I don't believe a country can run a trade deficit for ever. The people that think you can run a continuous trade deficit think Britain's asset values will go up for ever and Britain can MEW to fund the trade deficit. Just sound like a ponzi scheme to me.

Do any of you think Britain can run a trade deficit for ever?

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Funnily enough when you have a trade deficit, a weak currency makes it much worse in the near term.

Next choice, compete on innovation and move up the chain or move down and compete on cost like we have tried to do all my life.

Look at the exporting companies that are still successful here and you will see the answer for us...drugs, aerospace, finance, chip design, car manufacture etc.

We're competing by keeping a housing and debt bubble going.

Utterly doomed on all fronts.

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You can just imagine them sitting round drawing straws to see who is going to go and try and bluff the Telegraph this month.

What is really surprising is how unsophisticated the financial journos are who write this rubbish. And how the currency markets react to this sort of propaganda......ooooh interest rates might rise, buy sterling. I assume these press releases are made deliberately to influence the markets, but they are so obviously bluffs one would think they can't possibly work. But they appear to work because they get reprinted and sterling often moves on the back of this sort of statement.

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What is really surprising is how unsophisticated the financial journos are who write this rubbish. And how the currency markets react to this sort of propaganda......ooooh interest rates might rise, buy sterling. I assume these press releases are made deliberately to influence the markets, but they are so obviously bluffs one would think they can't possibly work. But they appear to work because they get reprinted and sterling often moves on the back of this sort of statement.

They are not press releases they are speeches made by MPC members. They are seen as an insight into how that particular member is voting and thier personal outlook. Although there are also 8 others so it doesn't mean a lot on it's own. Especially not when Merv is saying the complete opposite!

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Rates must rise!*

(*at the lastest by the year 2050).

I think if you are in the rates must rise camp you must think that the trade deficit is sustainable. Keep the currency bubble blown up and keep importing stuff. I think this is a short term solution that will soon run out of legs.

The only sustainable answer I see is to see the pound fall off a cliff start export as much as we import. we need low interest rates to business that produce thing we can trade for oil and other commodities. In other words we are stuffed.

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What is really surprising is how unsophisticated the financial journos are who write this rubbish. And how the currency markets react to this sort of propaganda......ooooh interest rates might rise, buy sterling. I assume these press releases are made deliberately to influence the markets, but they are so obviously bluffs one would think they can't possibly work. But they appear to work because they get reprinted and sterling often moves on the back of this sort of statement.

See: http://www.macroresilience.com/2011/04/04/financial-market-regulation-and-the-art-of-war/

Much like John Boyd, Sun Tzu emphasised the role of deception in war: “All warfare is based on deception”. In the context of regulation, “deception” is best understood as the need for the regulator to be unpredictable.

As is clear from the war analogy, a predictable adversary is easily defeated. This of course is why Goodhart’s Law is such a big problem in regulation. Lacker’s suggestion that the regulator follow a “simple decision rule” is fatally flawed for the same reason. Lacker also suggests that “legal constraints limiting policymakers’ actions” could be imposed to mitigate the moral hazard problem. But attempting to lay out a comprehensive list of constraints suffers from the same problem i.e. they can be easily circumvented by a determined regulator. If the relationship between a regulator and the regulated is akin to war, then so is the relationship between the rule-making legislative body and the regulator.

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I think if you are in the rates must rise camp you must think that the trade deficit is sustainable. Keep the currency bubble blown up and keep importing stuff. I think this is a short term solution that will soon run out of legs.

The only sustainable answer I see is to see the pound fall off a cliff start export as much as we import. we need low interest rates to business that produce thing we can trade for oil and other commodities. In other words we are stuffed.

where do you get this mince that the pound is astrong currency? or that sterling falling 80% will turn it into a world leading exporter. Are zimbabwe a bigger exporter than 10 years ago or switzerland a smaller exporter than 10 years ago?. The UKs trade deficit is structural, its not sterling induced

Edited by georgia o'keeffe

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What is really surprising is how unsophisticated the financial journos are who write this rubbish. And how the currency markets react to this sort of propaganda......ooooh interest rates might rise, buy sterling. I assume these press releases are made deliberately to influence the markets, but they are so obviously bluffs one would think they can't possibly work. But they appear to work because they get reprinted and sterling often moves on the back of this sort of statement.

IMHO it's a bit more complicated than that. You don't have to believe the statement, you just have to believe the statement will either have a neutral* or positive impact on sterling, and from that point on it turns into a self-fulfilling prophecy.

Isn't this standard bubble-like behaviour - you buy into a rising market, irrespective of what you think of the real 'value' of that market.

* neutral is - you hope - your worst-case scenario, since it doesn't make you money, but it doesn't lose you money either.

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No, Weale came earlier. Sentance was replaced by a Goldmans guy. Er...

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Funnily enough when you have a trade deficit, a weak currency makes it much worse in the near term.

Next choice, compete on innovation and move up the chain or move down and compete on cost like we have tried to do all my life.

Look at the exporting companies that are still successful here and you will see the answer for us...drugs, aerospace, finance, chip design, car manufacture etc.

So the hope is that we can produce the expensive technical stuff that other countries need and they don't lean how to produce it them selves. Every body wanting Rolls Royce engines in their planes and china not trying to compete. Going to be a difficult job staying one step a head all the time.

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So the hope is that we can produce the expensive technical stuff that other countries need and they don't lean how to produce it them selves. Every body wanting Rolls Royce engines in their planes and china not trying to compete. Going to be a difficult job staying one step a head all the time.

Of course it's a difficult job - so is pretty much anything that's worth doing. And if housing costs fell, we could compete on some of the more basic production as well.

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So the hope is that we can produce the expensive technical stuff that other countries need and they don't lean how to produce it them selves. Every body wanting Rolls Royce engines in their planes and china not trying to compete. Going to be a difficult job staying one step a head all the time.

well no country or company has the right to success, it should always be a difficult job, thats what drives progress. Fundamentally if countries can drive out corruption to the maximum across all levels of society then it is half way to being successful already, the UK has a long way to go but its possible for any country to be relatively successful given its resources if it does so and remains focused and doesnt get sloppy which breeds lethargy and then corruption. If on the other hand everyone making decisions focuses on fcking each other over said country will go the same as parts of E Europe

Edited by georgia o'keeffe

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  • 309 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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