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leemo

Further Interest Rate Cuts?

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What's going on with interest rates?

Back in August Mervyn King said that the 0.25% cut was a one-off and did not indicate the start of a series of cuts. He asserted that the sterling bond market was wrong to price in further rate cuts, because further cuts would lead to inflation above the 3% target according to the BoE model.

But the markets are still pricing in a cut and Roger Bootle, who has an excellent track record is prediciting a further cut in November.

So after admitting a futher cut will push inflation over taget, surely the BoE/MPC will loose all credibility if they make another cut. How can they do it?

Let's suppose they do make a further cut. Now given that CPI and RPI are dodgy inflation measures and that inflation is perhaps around 4% already and the action of the cut will stoke inflation even further, real interest rates will be approaching zero or even be negative.

And so I will come to the conclusion that the BoE/MPC/powers-that-be are trying to support the countries debtors by inflating the currency and deflating away their debt. Although economically fool hardy, this strategy might be politically astute in the short term given that the majority of voters are owner occupiers. Its not an unreasonable thought such in circumstances.

So if debt is about to be deflated away, it might be a good time to take on large debt (especially with a fixed rate mortgage) and a purchase a house?

Please don't respond with awooga. I have been a bear on this site for over 6 months, and this is a completely genuine post.

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dont get suckered into manipulated inflation figures. they are NOT REAL.

they dont include housing costs, which is the largest monthly outgoing.

because of this, we have two different levels of inflation in the uk.

those for who are already homed pre 2000 (very low govmt inflation)

those who are not homed or renting (actual inflation pressure on wage is 40%)

how long do you think this can continue ?

Edited by right_freds_dead

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Simple - they cut interest rates because admitting publicly that the economy is screwed is better than the economy being screwed. Or something like that. Low interest rates are just a signal that the economy is on its knees.

As to whether this is the time to take on huge debt...yes, this is an interesting one. A game-theoretic dilemma; we're up to the eyeballs in debt, the economy is screwed, and there's no rational way out. What to do next? Now you have to start second-guessing what policy makers will do and how to exploit this. If inflation goes up significantly you don't want to be holding cash, and massive debt might be good. Will there be some sort of revaluation, debt forgiveness, currency rebasing? Then debt might be good. Will there be prolonged pain for those in debt as the "integrity" of the financial system is maintained? In that case being in debt would be horrendous but that cash you've got in the bank will buy you far more than you can buy now.

The questions you have to ask are, how risk-averse are you; and do you think you can second-guess what will be politically-motivated decisions and thus probably economically irrational? Well, do you feel lucky, punk?!

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Will there be prolonged pain for those in debt as the "integrity" of the financial system is maintained?

By Merv's very owm admission, if there's one more cut, the "integrity" of the financial system will have been compromised.

im pretty sre without second guessing that inflation is about to rocket.

Surely time to take on a fixed rate mortgage then?

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Guest Charlie The Tramp
Roger Bootle is predicting rates at 3.5% next summer.!

This has me worried.!!

Likewise, I think the poor man is heading for the funny farm, sad really.

:(

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Roger Bootle is predicting rates at 3.5% next summer.!

This has me worried.!!

Let's look at Mr Bootle's record on forecasting interest rates, shall we?

http://www.guardian.co.uk/economicdispatch...1141789,00.html

Thursday February 5, 2004

Mr Bootle believes that rates will not go higher than 4.25%

Meanwhile, in the real world:

http://213.225.136.206/mfsd/iadb/Repo.asp?Travel=NIxIRx

Thu, 05 Aug 2004 4.75%

Bootle has been saying interest rates will go to 3.5% since before the dotcom crash. No other serious economist is predicting this, and nor are the money markets:

http://www.futuresource.com/quotes/quotes.jsp?s=lss

For God's sake, will people stop getting unsettled by the slightest little thing! :rolleyes:

Edited by IPOD

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Let's look at Mr Bootle record on forecasting interest rates, shall we?

http://www.guardian.co.uk/economicdispatch...1141789,00.html

Meanwhile, in the real world:

http://213.225.136.206/mfsd/iadb/Repo.asp?Travel=NIxIRx

Bootle has been saying interest rates will go to 3.5% since before the dotcom crash. No other serious economist is predicting this, and nor are the money markets:

http://www.futuresource.com/quotes/quotes.jsp?s=lss

For God's sake, will people stop getting unsettled by the slightest little thing! :rolleyes:

Feel better now. My brother works for Deloitte hence all I hear is Bootle speak.!!

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dont get suckered into manipulated inflation figures. they are NOT REAL.

they dont include housing costs, which is the largest monthly outgoing.

The exclusion of housing costs, which are actually going down due to lower rents and marginally lower (in real terms) house prices, means that inflation is presently overstated. If housing prices were included inflation would be lower, and would fall further if and when we ever get our HPC.

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"Roger Bootle is predicting rates at 3.5% next summer.!

This has me worried.!!"

Europe’s rates are still at 2% in an attempt to start there economy – are we not in the same boat. How long is it till they have to lower the rates to a ridiculously low level to start our economy.

Being at 2% has not hurt the euro – if our IR were reduced surly the pound would not be hit that hard

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Guest Charlie The Tramp
Europe’s rates are still at 2% in an attempt to start there economy – are we not in the same boat. How long is it till they have to lower the rates to a ridiculously low level to start our economy.

Yes, but Europe are not up to their necks in personal debt, IRs at 2%, the lemmings would have a field day.

Debtors historically have never been given a helping hand.

<_<

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Forgive my naïve take on this and correct me if I am wrong, but how could we deal with inflation if it is just happening in Britain? Wouldn't it have to be a global problem to set it as a new benchmark, otherwise we will lose out on business to the rest of the world and the original problem of = no jobs, no growth, bring us into a recession where the whole country has no money. Therefore if you have any cash at all you would be better off than everyone else, despite their assets???

Basically there would have to be global inflation in order for it to work in favour of those saddled with debt?

I know that USA is trying to inflate their way out. Maybe the wheels are already in motion.

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Surely time to take on a fixed rate mortgage then?

not really. granted my mortgage payment would level off, but id still have inflationary pressure on all the goods i buy and services i use. plus the same inflation would affect government services and taxes would also rise. my wage would take a beating.

nope. when something as big as a house is 40% overpriced, no amount of cooking figures can get around that fact. the sum will always be there and will always need to be paid in one form or another.

Basically there would have to be global inflation in order for it to work in favour of those saddled with debt? I know that USA is trying to inflate their way out. Maybe the wheels are already in motion.

if its not global inflation it would devalue the individuals currency to foreign countries making imports cheaper and exports more expensive crushing manufacturing.

Edited by right_freds_dead

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It seems clear that there are two paths out of the current economic impasse:

1) Reduce Interest Rates

Causes:

Increased Inflation

Drops in stirling (feeding through to above)

Property market stagnates with real-value eaten away by inflation and stirling drops.

Effect:

No-one really notices that the 'real' value of their houses has plummetted (non-adjusted house prices remain constant or even rise slightly).

Mervyn is Sad, Gordon is Happy (what %age of population really understand inflation anyway)

2) Increase or leave Interest Rates stable:

Causes:

Inflation remains manageable (2-3%)

House prices drop in easily noticeable ways and confidence plummets towards a 'crash'.

Effect:

Everyone angry as we return to neg-equity and large scale repossesions.

Mervyn is Happy, Gordon is Sad (house owners up in arms, demand head of chancellor).

In my opinion we are at a cross-roads now, over the next few months we will find out which road we are going to be travelling down for the next 3 years or so. The current property bubble and largely associated debt mountain have to be dealt with, but depending on who you are will decide which of these scenarios you like best.

Personally I rent my property and have some savings (80k), I would prefer (2).

However, until recently I was paid in USD and had to decide where to move my money, I chose to invest in the Swiss Franc, even though I only get 1.5% interest (compared to 5% I could get in the UK). Obviously I am pessimistic and believe that scenario (1) is more likely. This is largely because of the housing obsession in the UK (dwarves even that of the Americans who are far more pragmatic about investments) plus Gordon's future ambitions. I mean, Gordon can choose to piss off a few thousand city businessmen and economists or millions of home owners, its a 'no-brainer' for a politician.

Edited by kuurus

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if and when we ever get our HPC.

I am under the illusion that prices are going down. Steadily and slowly. Not too dramatically.

I know there has been lots of talk on here of how HPI is measured.

If a house was bought in 2002 for £100k and sells in 2005 for £140k you have had 40% inflation over 3 years.

But, what if that house might/would have sold in 2004 for £160k?

I think, almost by definition, that if vendors are having to accept prices more than the nominal grand or two that people often offer below an asking price, i.e. if 350k is asked but 315k accepted (6 months later) it is clear you are in a falling market.

If houses go on the market and sell the first weekend at, or slightly over the asking price, you are in a rising market.

Where I live we are well into a steadily falling market characterised by:

1) new builds selling for 15% or more under asking price

2) properties sitting on the market month after month after month

3) offers being accepted well below asking price

If this continues there will be a steady erosion of house prices.

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if its not global inflation it would devalue the individuals currency to foreign countries making imports cheaper and exports more expensive crushing manufacturing.

Thats what I think will happen, what i was getting to.

This would be bad news for Britain and the sh1t will really hit the fan. This is Stagflation. The last time this was around we had a house price crash did we.

Edited by No Muggy Bear

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The exclusion of housing costs, which are actually going down due to lower rents and marginally lower (in real terms) house prices, means that inflation is presently overstated. If housing prices were included inflation would be lower, and would fall further if and when we ever get our HPC.

you cant ramp up something so big quietly to 40% inflated, then chip at it by -2% and claim inflation is down. that would only work if you pretended the hyper house inflaion didnt happen.

and as one of the minions expected to pay this whopping amount without question,

i can tell you it did happen and it priced me out with it.

Thats what I think will happen, what i was getting to.

This would be bad news for Britain and the sh1t will really hit the fan. This is Stagflation. The last time this was around we had a house price crash did we.

well last time we had at least manufacturing to lose. this time we dont have any left, so the pound will have to take the beating instead. hence uk investors will exit to gold or another foreign currency.

thanks gordon.

Edited by right_freds_dead

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So if debt is about to be deflated away, it might be a good time to take on large debt (especially with a fixed rate mortgage) and a purchase a house?

Huh ? You anticipate IRs potentially coming down, but consider taking on a fixed rate mortgage at today's rates ?

Pent

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you cant ramp up something so big quietly to 40% inflated, then chip at it by -2% and claim inflation is down. that would only work if you pretended the hyper house inflaion didnt happen.

and as one of the minions expected to pay this whopping amount without question,

i can tell you it did happen and it priced me out with it.

well last time we had at least manufacturing to lose. this time we dont have any left, so the pound will have to take the beating instead. hence uk investors will exit to gold or another foreign currency.

thanks gordon.

Does anyone on here think that holding euros will be a good idea? Or any other currency? Is this legal?

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Guest Charlie The Tramp
Rate cut in November will be a great early Xmas present for many people.

Well that`s good news then.

:)

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Huh ? You anticipate IRs potentially coming down, but consider taking on a fixed rate mortgage at today's rates ?

Not quite. IF IRs are cut again, THEN I'd consider a fixed rate mortgage, depending on what the fixed rate is at the time. (Actually I'm holed up in rental til summer, but would consider buying then).

I'd used fixed rate, because I could be wrong. If IRs go up a lot and I'm on variable then I wouldn't be able to keep up the repayments and the high IRs would cause a crash leaving me unable to sell and pay off the mortgage.

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Does anyone on here think that holding euros will be a good idea? Or any other currency?

Possibly. Most of my savings are out of Sterling now, though not into Euros.

Is this legal?

Yes. Obviously you're meant to tell the tax-man about any foreign interest you earn though.

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Possibly. Most of my savings are out of Sterling now, though not into Euros.

Yes. Obviously you're meant to tell the tax-man about any foreign interest you earn though.

Ok, thanks for that, would you mind saying which currency you now hold? I suppose its a matter of which country you feel will fair best over the next few years but I am not researched in this area, does anyone know of any good articles on this?

Thanks for your help.

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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% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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