No Interest Rate Rise Until 2013

[exiges]

http://www.telegraph.co.uk/finance/economics/interestrates/8583344/UK-interest-rates-will-not-rise-until-2013-BNP-Paribas.html

The pace of price rises should soon hit its highest level in two decades, at 6pc on the retail prices index (RPI), said the team at BNP Paribas.

However, the problems facing the recovery mean the Bank of England will achieve little by raising rates from their record 0.5pc low in a bid to rein in the pace of price rises, they argued.

“We do not believe the Bank of England will raise rates this year or next,” said Paul Mortimer-Lee, global head of market economics at BNP Paribas. “There is no point in hiking rates to slow the economy — it’s too slow already and fiscal consolidation will stop it from overheating.

“The only reason for a rate hike is to keep inflation expectations and wage rises down. [but] unemployment is already subduing wages.”

Mr Mortimer-Lee holds that one-off shocks — rises in the global cost of oil and food, a fall in the pound and the recent rise in VAT — explain away much of the UK’s inflation problem. That should mean CPI inflation will fall quickly next year as these factors ebb away, ending 2012 around the 2pc target.

[zilly]

But weren't we being told these inflationary effects were temporary two years ago?

And isn't the pound weak because of these low IRs?

Seems to me that any and every excuse and reason is being found to keep IRs low and start the debt binge all over again.

Also I wonder how many of these economists and politicians have more than half an eye on their own property portfolios when making these statements and taking these decisions...

[Errol]

But weren't we being told these inflationary effects were temporary two years ago?

In the BoE's dictionary 'Temporary' means a period of 5 years or possibly more or a period that exists in between BoE updates to the inflation outlook.

[woof]

I thought it had been explained to the public quite recently that the underlying cause of recent inflation was solely caused by a lot of prices having going up over the past twelve months. By taking today's prices and applying them to an assumed basket of goods 12 months forward, it can be seen that inflation is expected to fall so no interest rise is appropriate, although the BoE would remain vigilant in case the outlook should change.

[scepticus]

If it turns out inflation does subside to zero in 2012, there's a lot of people here are going to look pretty silly, and the BoE will end up having the last laugh.

[scottw]

Will someone please massage Chris c-t's ego please

I'll start. , Chris you're THE man

[Fairies Wear Boots]

If it turns out inflation does subside to zero in 2012, there's a lot of people here are going to look pretty silly, and the BoE will end up having the last laugh.

I think most things in that report are true. We aren't getting wage inflation. A decent rate rise would knock the economy back and house prices would fall. Even thought that sounds good to us, the last thing they want is falling house prices because then they'd have to bail out the banks because of domestic reasons, and the state owned banks losses will be ours. So they aren't going to do it. They might even be right about inflation dropping back. Be interesting to see if they are right or not.

On the one hand they reckon austerity and dropping oil prices will do it. On the other hand, aren't oil prices high because it's priced in dollars and both the pound and the dollar have dropped in value? So why will oil prices come down? And why will stuff cost less because people have less money? If it's overseas stuff, supermarkets etc will still have to make a profit. They aren't going to trade at a loss.

I see all this talk of deflation in money supply and big ticket items. But with the CPI where it is, surely we're just going to get stagflation in terms of CPI and economic growth?

[Errol]

If it turns out inflation does subside to zero in 2012, there's a lot of people here are going to look pretty silly, and the BoE will end up having the last laugh.

Inflation may 'subside' but prices won't. We'll still be stuck with the same high prices for everything. I await a retracement of the last 10yrs of inflation - a few years of massive deflation should do the trick to put prices back down to sensible levels.

[Fairies Wear Boots]

Inflation may 'subside' but prices won't. We'll still be stuck with the same high prices for everything. I await a retracement of the last 10yrs of inflation - a few years of massive deflation should do the trick to put prices back down to sensible levels.

Either that or wages go up

Interest rates staying low for years, I can see that happening. But with all this talk of strike action, maybe they will try and curb inflation. I was hoping the 'markets' would make them do it.

[the_duke_of_hazzard]

So it's worth borrowing money to load up on RPI-linked NS&I bonds.

[Realistbear]

BNP are right and so was Merv in refusing to hike. One hike and the house market goes over the edge along with everything else.

We just get poorer to pay for it all. Biggest beneficiaries will, of course, be the Banksters who charge 7% and pay 2%--best spread ever. Its a bank robbery that just keeps on giving to those who perpetrated it.

[bricor mortis]

They are basing this on the notion of " one off shocks" like they cant reoccur.

They state rises in the global cost of food and fuel and a fall in the value of the pound as "one off shocks".

Well the chances of these not being one off shocks and the way of our future are real, they are taking the complete p1ss here because they know there are no guarantees, they will just bullsh1t us all like there is some unwritten law or force of nature underwriting their assumptions. The real script should be some rich toad telling us to kiss it, they will hoover up savings pensions services all manifestations of social and private wealth that was so hard won over the last 100 years and if we dont like it they will dump us into the abyss. That would be at least honest.

[scrappycocco]

Given the world is ending 2012, it would of been nice if they could put the rates up so I could get a nice affordable place to enjoy the annihilation.

[InlikeFlynn]

So it's worth borrowing money to load up on RPI-linked NS&I bonds.

At the right price, yes.

Most people in a position to overpay their mortgage should divert the money into NSandI bonds, but it all depends on your individual circumstances.

[Take Me Back To London!]

So it's worth borrowing money to load up on RPI-linked NS&I bonds.

That was a profitable trade to do during the 1921-23 hyperinflation in Germany to buy assets or foreign currencies on credit denominated in German marks.

I would not bother doing that trade involving RPI-linked bonds, because of the following.

Definitions

3. In these terms and conditions:

(l) “RPI” means the Retail Prices Index compiled by the Office for National Statistics, or any Index replacing it;

and

Changes to these terms and conditions

87. The Treasury reserves the right to amend these terms and conditions at any time. If the change is to the Certificate holder’s detriment we will let them know personally at least 30 days before the change. If this is the case you can switch to another NS&I product or cash in your Certificate without notice or penalty within 60 days of us telling you.

http://www.nsandi.com/savings-index-linked-savings-certificates

Edited June 18, 2011 by Take Me Back To London!

[Fairies Wear Boots]

They are basing this on the notion of " one off shocks" like they cant reoccur.

They state rises in the global cost of food and fuel and a fall in the value of the pound as "one off shocks".

Well the chances of these not being one off shocks and the way of our future are real, they are taking the complete p1ss here because they know there are no guarantees, they will just bullsh1t us all like there is some unwritten law or force of nature underwriting their assumptions. The real script should be some rich toad telling us to kiss it, they will hoover up savings pensions services all manifestations of social and private wealth that was so hard won over the last 100 years and if we dont like it they will dump us into the abyss. That would be at least honest.

I'm now convinced that trying to avoid a full blown HPC is their number one priority. They've got there fingers crossed it's one off shocks. I think they know if the banks start losing money hand over fist in a domestic HPC where there are lots of repos, it's GAME OVER. That's why there probably won't be any interest rate rise until 2013 or even later, if they can avoid it.

[council dweller]

I'm hoping that things will go weimar lite with people not really watching the foreign exchange markets, though in this case it would mean not watching the forex markets of the east. One day we might wake up to find that the Pound, Euro and Dollar have all crashed.

IMO this will come well before 2013.

[inflating]

Inflation may 'subside' but prices won't. We'll still be stuck with the same high prices for everything. I await a retracement of the last 10yrs of inflation - a few years of massive deflation should do the trick to put prices back down to sensible levels.

+1

[gf3]

I'm now convinced that trying to avoid a full blown HPC is their number one priority. They've got there fingers crossed it's one off shocks. I think they know if the banks start losing money hand over fist in a domestic HPC where there are lots of repos, it's GAME OVER. That's why there probably won't be any interest rate rise until 2013 or even later, if they can avoid it.

+1

I don't think they will put rates up even If we get some wage increases. They will be pleased just to get debts inflated away. I think we will end up spending so much of our income on food and fuel, housing will end up taking a smaller percentage of our income.

The trouble is that what ever money we have left over after living expenses goes on housing so if we all have 50% of our money left we spend that on housing. If however we only have 25% housing has to be cheaper. The silly thing is you still end up with the same house.

[miko]

+1

I don't think they will put rates up even If we get some wage increases. They will be pleased just to get debts inflated away. I think we will end up spending so much of our income on food and fuel, housing will end up taking a smaller percentage of our income.

The trouble is that what ever money we have left over after living expenses goes on housing so if we all have 50% of our money left we spend that on housing. If however we only have 25% housing has to be cheaper. The silly thing is you still end up with the same house.

+1

Food , fuel , clothes and housing , those are the things people will buy.

The cost of fuel and food will rise as the £ falls so there will be less money for housing which will not be priced due to outside influences but what people can and will pay. As for clothes we will go back to only buying what we need and will make them last.

[nohpc]

Hard working families are still living in fear of an interest rate rise according to the papers.

Not until hard working families have accepted ultra low rates as being the new normal will they start to rise.

2013 is looking optimistic.

[Spoony]

+1

Food , fuel , clothes and housing , those are the things people will buy.

The cost of fuel and food will rise as the £ falls so there will be less money for housing which will not be priced due to outside influences but what people can and will pay. As for clothes we will go back to only buying what we need and will make them last.

There is absolutely no sign of any of this. The people I work with have no concept of saving money, cutting back and not spending on clothes they don't actually need and going out drinking most weekends. If I go out to the shops I see the same, people still spending like no tomorrow and shops packed. The behaviour hasn't changed. In the UK, people seem to be living in a bubble and have no idea or concept of what it means to be living with a government which has such a mammoth deficit.

Even the government seem to be less concerned than the should be. The cuts have been minimal, the spending on world aid continues, as if we have a surplus of money and the spending on wars that we have no business in continues along with new ones - Libya!

I think the UK is in a state of denial, a fools paradise,.

[miko]

There is absolutely no sign of any of this. The people I work with have no concept of saving money, cutting back and not spending on clothes they don't actually need and going out drinking most weekends. If I go out to the shops I see the same, people still spending like no tomorrow and shops packed. The behaviour hasn't changed. In the UK, people seem to be living in a bubble and have no idea or concept of what it means to be living with a government which has such a mammoth deficit.

Even the government seem to be less concerned than the should be. The cuts have been minimal, the spending on world aid continues, as if we have a surplus of money and the spending on wars that we have no business in continues along with new ones - Libya!

I think the UK is in a state of denial, a fools paradise,.

There might not be much sign of this yet but there will be if and when prices of essentials like food and fuel rise while wages fall.

The people you work with will cut back when and if they lose their jobs and find themselves earning less or living on benefits. Where i worked we wound each other up buying new cars and having expensive holidays , meals out and the latest t.v. were the norm.

Today those same people me included give each other money saving tips and wish our lives away waiting for our pensions from the firm that closed down ( fingers crossed that the pension which looks good does not go belly up ) reality can strike at any time.

[snowflux]

That was a profitable trade to do during the 1921-23 hyperinflation in Germany to buy assets or foreign currencies on credit denominated in German marks.

I would not bother doing that trade involving RPI-linked bonds, because of the following.

and

http://www.nsandi.com/savings-index-linked-savings-certificates

It doesn't matter if RPI refers to the retail price of fish on Iceland. If you can borrow money at a lower rate of interest than you can invest it, it makes sense to do so with as much money as you can. Economics 101, surely?

[Tiger Woods?]

If it turns out inflation does subside to zero in 2012, there's a lot of people here are going to look pretty silly, and the BoE will end up having the last laugh.

If the pixies at the end of my garden existed, then I would be able to sell my story to the newspapers for a million quid and I would be a rich man.

Ain't material conditionals a wonderful thing.

Edited June 22, 2011 by Tiger Woods?