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Interest Rates Are Rising!

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Today we have low base rates for political reasons. Whilst people can argue that the BOE sets the interest rates, it is government that chooses how inflation is calculated and sets BOE targets. Interest rates are currently too low. The commercial world however has its own way of compensating for bad political decisions and, given Barclays decision to break ranks this week, it would appear that Gordon Brown's efforts to manipulate the market is running out time.

Barclays have announced higher credit card charges to reflect a worsening bad debt outlook. It would be stupid however to conclude that this bad debt risk is only limited to credit card holders (especially when we live in an age where it is so easy to covert credit card debt into mortgage debt).

The other risk is inflation. People who lend money to banks need to be compensated for higher inflation risk. If not, sterling will be punished.

The conclusion has to be that mortgage rates are unsustainably low. If base rates do not rise this week (and they probably won't) commercial lending will simply go its own way. We could see mortgages up 1% in real terms by Christmas.

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Historically, the interest rate differential between the US and the UK has been higher than it is currently.

Pressure is now being felt on Sterling and the BOE will need to consider this when settting interest rates. As the US is going to have to continue putting up rates to prevent inflation a la South America from taking hold, the pressure for the BOE is going to be greater.

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  • 301 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% +
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      • up 5%

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