It's 0.25% Bump Every Month Boe Base Rate Thread ----Merged.

[interestrateripoff]

BoE base rate held again at 0.5%

http://www.telegraph.co.uk/finance/financialcrisis/9131007/No-change-from-BoE-on-third-anniversary-of-0.5pc-rates.html

The Bank's Monetary Policy Committee also voted to maintain its £325bn target for quantitative easing, the asset purchasing programme that was also started in March 2009 as the MPC introduced emergency measures to battle the recession.

Three years on and monetary policy is still ultra loose against a backdrop of weak economic growth and high unemployment.

Economists said there was no indication that policy would be tightened any time soon.

"A fourth year of interest rates at 0.50% looks highly probable and a fifth is far from impossible given the still difficult domestic and international conditions that the economy face," said Howard Archer, chief UK economist at IHS Global Insight.

We appear to have got bored with the BoE interest rate setting so I thought I'd make it easier. Just bump this each month.

Unless of course I'm now set off the HPC contrarian indicator and next month there will be a change...

Edited March 8, 2012 by interestrateripoff

[interestrateripoff]

I wouldn't expect a lot of comments over and above the bump any more.

That's why I've just said bump every month. I wouldn't expect anything else. Clearly the base rate is detached from reality.

[winkie]

That's why I've just said bump every month. I wouldn't expect anything else. Clearly the base rate is detached from reality.

It has gone past the effectiveness of base rate now....it is more a matter of QE the rate and what amount is created, pumped into the system and when.....new uncharted territory.

[Spoony]

Its scandalous. I am fed up of being robbed, that doesn't change every month. The only thing that made me even MORE annoyed this month was the news that the rates have been at a crazy 0.5% for 3 years!. Yes three years! The BBC seemed quite happy when they mentioned it on 'news' 24.

[Charlie The Tramp Returns]

Please excuse my naivety but who lends at 0.5% to the Banking System, if no lender then why the bloody hell is the Bank of England Base Rate 0.5%. Is it just an excuse to attack the Savers and Prudent. :angry:

['Bart']

3 years, so at least 2 without a decent IR thread on HPC.

It used to be one of the highlights of the month.

[Charlie The Tramp Returns]

It used to be one of the highlights of the month.

So was CTT and Pavement`s so called romantic liason.

[billybong]

The news today was full of how mortgage rates are now beginning a cyclical uptrend and in that connection base rates are irrelevant.

Sir Mervyn looks more and more caught in the headlights and lacking in relevance. He's more and more startled as time goes on.

[zebbedee]

Its scandalous. I am fed up of being robbed, that doesn't change every month. The only thing that made me even MORE annoyed this month was the news that the rates have been at a crazy 0.5% for 3 years!. Yes three years! The BBC seemed quite happy when they mentioned it on 'news' 24.

For months now I have this recurring dream, I'm in a mob and we get hold of that tw@ King, grab a rope and hang im high, its quite the most pleasurable dream I've had in years. I then wake and realise they are still robbing me to keep house prices, the one thing I have saved diligently to be able to buy, high :angry: :angry: :angry:

[ChumpusRex]

Please excuse my naivety but who lends at 0.5% to the Banking System, if no lender then why the bloody hell is the Bank of England Base Rate 0.5%. Is it just an excuse to attack the Savers and Prudent. :angry:

The BoE lends at base rate (in return for very good quality collateral) - that is what the base rate is. It is the BoE's "risk free" lending rate.

If a bank has insufficient cash to balance its books at the end of a working day, but has a large stock of gilts, then it can swap the gilts for cash at the BoE, and the BoE will charge base rate on the loan.

Under normal conditions, the lending between banks will always be at a higher rate, as typical interbank lending is unsecured (rather than secured on "perfect" collateral). Because of the non-zero risk of default, the interest rate on the loans must necessarily be slightly more than base rate - how much more, depends on what the default risk is judged to be by the lending banks. At the peak of the bubble, the interbank rate had dropped to almost precisely equal BoE base rate, because default by a bank was judged "impossible" by bankers in general. Once NR and the others started to go tits-up, the interbank rate spiralled out of control, as risk started being priced in.

In return, the BoE slashed base rate - which in turn lowered the interbank rate (which in effect is BoE base rate + risk premium). Then, after the bailouts, the risk premium reduced, and for the last year or so, interbank rate has been only marginally above BoE base rate.

Now that Greece has been nearing implosion, and cracks have been showing in a number of other banks, the interbank rate has been back on the rise.

[interestrateripoff]

http://blogs.telegraph.co.uk/finance/philipaldrick/100015452/isnt-it-time-the-bank-cut-interest-rates-to-zero/

Only twice before in the 318-year-old Bank’s modern history have rates been static for longer. In the decade of the Second World War and the austerity that followed, 1940-1950, rates were held at 2pc, and for five years in the Great Depression, from 1933 to 1938, when rates were again held at 2pc.

The Bank broke through that symbolic previous low, of 2pc, in January 2009 as the country sank into the deepest recession since the 1930s. But it stopped at 0.5pc, insisting that lowering the base rate any more would have little effect. QE became the tool of choice, acting like a rate cut by forcing down borrowing costs in the financial markets.

On the third anniversary, economists are now beginning to question whether the Bank should be setting a new record again – by cutting rates right down to zero.

So only another 2 years to go and we'll have beat the Great Depression.

[Greg Bowman]

Please excuse my naivety but who lends at 0.5% to the Banking System, if no lender then why the bloody hell is the Bank of England Base Rate 0.5%. Is it just an excuse to attack the Savers and Prudent. :angry:

I actually think its working quite well. In that the complaints from businesses that interest rates were a blunt instrument are now less relevant. Mortgage rates are on the rise but we can borrow at a lower rate. Surely if carried on we will effectively have a two tier market.

As for interest you have no god given right to earn interest in fact some religions consider it immoral.

We actually need risk takers and people who take chances more than ever, who can sweat money to make it work and create wealth and jobs.

The days of earning 3 times inflation just for pressing a few keys are over and good riddance. The out of kilter returns that could be generated by simply having a bank account, strangled investment and innovation

[neil324]

I actually think its working quite well. In that the complaints from businesses that interest rates were a blunt instrument are now less relevant. Mortgage rates are on the rise but we can borrow at a lower rate. Surely if carried on we will effectively have a two tier market.

As for interest you have no god given right to earn interest in fact some religions consider it immoral.

We actually need risk takers and people who take chances more than ever, who can sweat money to make it work and create wealth and jobs.

The days of earning 3 times inflation just for pressing a few keys are over and good riddance. The out of kilter returns that could be generated by simply having a bank account, strangled investment and innovation

So to paraphrase the bank rate in the boom years was to high?

[Democorruptcy]

For months now I have this recurring dream, I'm in a mob and we get hold of that tw@ King, grab a rope and hang im high, its quite the most pleasurable dream I've had in years. I then wake and realise they are still robbing me to keep house prices, the one thing I have saved diligently to be able to buy, high :angry: :angry: :angry:

What are you wearing in your dream? You're not the bloke who always snatches the rope out of my hands just when I am going to put it over his head and you do it instead?

[Charlie The Tramp Returns]

The BoE lends at base rate (in return for very good quality collateral) - that is what the base rate is. It is the BoE's "risk free" lending rate.

If a bank has insufficient cash to balance its books at the end of a working day, but has a large stock of gilts, then it can swap the gilts for cash at the BoE, and the BoE will charge base rate on the loan.

Under normal conditions, the lending between banks will always be at a higher rate, as typical interbank lending is unsecured (rather than secured on "perfect" collateral). Because of the non-zero risk of default, the interest rate on the loans must necessarily be slightly more than base rate - how much more, depends on what the default risk is judged to be by the lending banks. At the peak of the bubble, the interbank rate had dropped to almost precisely equal BoE base rate, because default by a bank was judged "impossible" by bankers in general. Once NR and the others started to go tits-up, the interbank rate spiralled out of control, as risk started being priced in.

In return, the BoE slashed base rate - which in turn lowered the interbank rate (which in effect is BoE base rate + risk premium). Then, after the bailouts, the risk premium reduced, and for the last year or so, interbank rate has been only marginally above BoE base rate.

Now that Greece has been nearing implosion, and cracks have been showing in a number of other banks, the interbank rate has been back on the rise.

Many thanks for a clear and easy to understand reply. Just goes to show that the Banks use the base rate as an excuse to well and truly screw their Saving Investors.

Now on my Xmas Card list.

As for interest you have no god given right to earn interest in fact some religions consider it immoral.

It`s not a part of my religion , if I lend money I expect an interest rate of at least 4%. I know some religions find it immoral but they have a clever way of getting around the problem.

[Greg Bowman]

Many thanks for a clear and easy to understand reply. Just goes to show that the Banks use the base rate as an excuse to well and truly screw their Saving Investors.

Now on my Xmas Card list.

It`s not a part of my religion , if I lend money I expect an interest rate of at least 4%. I know some religions find it immoral but they have a clever way of getting around the problem.

Why? Then lend it to your mates, oh you want me to underwirite it whilst it just sits there doing nothing. Money is round because it's meant to go around, I find this whole woe betide me S*** from savers quite funny actually.

So lend it don't save it.

[Greg Bowman]

So to paraphrase the bank rate in the boom years was to high?

Of course it was, if you could outstrip inflation with no risk then why would anyone invest in real things like businesses as I have said I find this woe betide me s*** from savers quite funny really.

Edited March 9, 2012 by Greg Bowman

[Charlie The Tramp Returns]

Why? Then lend it to your mates, oh you want me to underwirite it whilst it just sits there doing nothing. Money is round because it's meant to go around, I find this whole woe betide me S*** from savers quite funny actually.

So lend it don't save it.

Two years ago it was estimated that the Banks held over £1 Trillion pounds in all types of Savings Accounts. It was a very long and popular thread with links on this Forum, what do they do with it leave the money in their Vaults or use it to fill the ATMs. Why are they offering me a slightly higher rate if I tie it in for 5 years?

Come off it they lend private savers money out at 3x the rate they pay the saver to the borrower.

Of course it was, if you could outstrip inflation with no risk then why would anyone invest in real things like businesses as I have said I find this woe betide me s*** from savers quite funny really.

I take it you are skint then.

[neil324]

Of course it was, if you could outstrip inflation with no risk then why would anyone invest in real things like businesses as I have said I find this woe betide me s*** from savers quite funny really.

Does that include investing in housing and out striping inflation 6 times over. The problem was in the boom years to much money was being channeled into none productive things, ie housing and we are now left with a big shite sandwich. In fact i would hazard a big fooking guess the saving rate to GDP has stayed the same for the last decade or more. Business in the boom years expanded to take advantage of the easy money on offer.

And the fact we are up the creek without a paddle and the boat stuck up our **** is nothing to do with the BOE rate being to low in the boom years in fact the fooking opposite.

Edited March 9, 2012 by neil324

[gf3]

It`s not a part of my religion , if I lend money I expect an interest rate of at least 4%. I know some religions find it immoral but they have a clever way of getting around the problem.

Have I got good news for you. The Halifax 5 year ISA bond is paying 4.5%

Halifax ISA

[Greg Bowman]

name='Charlie The Tramp Returns' timestamp='1331323507' post='3281510'

I take it you are skint then.

If I can return 20% net in one of my companies ( actually more than obviously if you base it on the capital employed) what interest to me is a 5% base rate so I get a 6 % return?

And no, not skint in fact personal balance sheet best it's been for 4 years and I actually don't think that's a coincidence

[Lion]

So to paraphrase the bank rate in the boom years was to high?

Compared to other significant world economies, particularly the US and Japan, the interest rates in the UK are actually quite high. I propose to slash them to 0%. This would do more for the economy than QE. It would also save me £152 per month on my lifetime tracker and I promise I will spend it so the economy can benefit from it - the economy does not benefit from savers, it benefits from spenders (as long as they do not default of course).

Money needs to change hands quickly and on a continuous basis to provide income and growth for all of us and should not be trapped in saving accounts, so interest rates should be even lower to discourage hoarding of cash. Pensioneers should be encouraged to also live off their capital, not just the interest. Banks do not need their savings anyway to lend money, they can create money out of thin air (otherwise they would not offer so low interest rates for savers). There is too much debt as there is to much credit (for every debt there is a credit), so in order to reduce debt the surplus credit has also to be reduced. Spending the money lingering in saving accounts would be a start. In the current situation, the government needs to encourage spending, not saving, as the main problem in the coming years will be sluggish growth. The people who live below their means are in the long term equally damaging to a society as the people who live beyond their means. But you need to look at the greater picture to understand this.

Edited March 10, 2012 by Lion

[gf3]

So to paraphrase the bank rate in the boom years was to high?

I think interest rates were too blunt an instrument during the boom. If interest rates had been put up during the boom the pound would have been incredibly strong and we would have imported even more and exported nothing. We haven't enough manufacturing in this country as it is a stronger pound would have kill what we have left.

The government should have tax us more during the boom and saved the money for when the down turn came. Probably not giving all the tax out in benefit would have been a better idea.

Edited March 10, 2012 by gf3

[gf3]

Compared to other significant world economies, particularly the US and Japan, the interest rates in the UK are actually quite high. I propose to slash them to 0%. This would do more for the economy than QE. It would also save me £152 per month on my lifetime tracker and I promise I will spend it so the economy can benefit from it - the economy does not benefit from savers, it benefits from spenders (as long as they do not default of course).

Money needs to change hands quickly and on a continuous basis to provide income and growth for all of us and should not be trapped in saving accounts, so interest rates should be even lower to discourage hoarding of cash. Pensioneers should be encouraged to also live off their capital, not just the interest. Banks do not need their savings anyway to lend money, they can create money out of thin air (otherwise they would not offer so low interest rates for savers). There is too much debt as there is to much credit (for every debt there is a credit), so in order to reduce debt the surplus credit has also to be reduced. Spending the money lingering in saving accounts would be a start. In the current situation, the government needs to encourage spending, not saving, as the main problem in the coming years will be sluggish growth. The people who live below their means are in the long term equally damaging to a society as the people who live beyond their means. But you need to look at the greater picture to understand this.

Nail on the head

This is why we need QE to replace the money that is just stuck in peoples saving accounts doing nothing.

The people in debt can't spend any more if the economy is going to grow the saver will have to start spending.

[ChumpusRex]

The government should have tax us more during the boom and saved the money for when the down turn came. Probably not giving all the tax out in benefit would have been a better idea.

Quite. Governments and central banks have a number of tools for controlling and regulating the economy: interest rates, tax and government borrowing.

Interest rates have the disadvantage of manipulating the currency, and so hurt/benefit imports/exports disproportionately.

Taxes can be lowered to stimulate the local economy, or raised to calm an overheating local economy. This is done without the effects on the currency, but has an indirect effect on imports/exports (by making exports more expensive, and imports cheaper in relation to indigenously products).

Government borrowing is also stimulative, with even lesser effects on the currency and imports/exports.

The problem we have had over the last 15 years or so, is that government borrowing has been very high, even with the powerful economic stimulus of north sea oil/gas. Similarly, taxes were kept inappropriately low, requiring excessive interest rates. These excessive interest rates severely hurt a lot of British business by making exports uncompetitive in teh global marketplace, and making off-shoring of services an absolute no-brainer. It also encouraged migrant workers as the very strong sterling, enabled lots of local currency to be sent home to families.

It's wrong for policians to put all the responsibility for controlling inflation and the economy onto the central bank - as their activities are just as important. The idea of giving IR control to the BoE was very clever as it allowed GB to deflect blame for incorrect fiscal policy, to the BoE who only had contorl over monetary policy.