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InlikeFlynn

Is A Rate Cut/more Qe Possible Before The Election?

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The recent slump in crude prices is now starting to feed in to fuel prices and will presumably reduce production costs in many sectors. I'm expecting CPI to fall further and faster and despite all the noises from the BoE I suspect a rate cut is more probable than a rise.

Would the government countenance any action before a general election or would this be seen as admitting weaknesses in the economy?

EDIT: just to add that the CPI/RPI figures for November will be released on 16th December.

Edited by InlikeFlynn

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I guess the US will raise first and the UK soon after. At that point, it will become painfully obvious that the US has allowed it's credit bubble to burst and the UK has not. With the tide out and the UK's nether regions clearly on display, rates here will go down again soon after

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The UK is bankrupt. I've argued all year that the next move would be down not up.

Spot on. By TOTAL debt to gdp, the UK is hopelessly bankrupt, more-so than when we were in the arms of the IMF in the '70s. That is the elephant in the room. Nobody will utter this truth.

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Put rates down or QE before the election is not in the long term economic plan and would not help hard working people .

Putting them up on the other hand would lead to a lot of hardship after the election .

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No.

I already know there is no limit to the expectations of house price inflation glory for those on the HPI side. However we should be careful to not believe VI intervention-protection measures are unlimited.

Telegraph
Struggling eurozone poses biggest threat to UK recovery: as it happened 25 November 2014

10:22 - Despite an adverse international climate, Mark Carney has stressed that the next policy move from the Bank will be a policy rate increase. The Monetary Policy Committee's conversations have focused on the pace of and timing and tightening, not further monetary easing, he says.

My private theory, years of the authorities bailing out losing positions, supporting failures, and denying opportunity for renter/savers waiting for value, leaves the renter/savers more depleted of noradrenaline in the brain, together with other psychological effects.

Occurs with participants in lab maze experiments, where they are continually blocked and frustrated (sometimes via direct intervention to deliberately prevent them bettering themselves, just as they think an opportunity ahead, barrier slide downs blocking them - by the overseers), until they eventually stop trying and believe it's all hopeless.

In housing market, maybe similarly leaving those priced out renter-savers apathetic, feeling wiped out, and convinced that market is hopeless and can't/won't change. Always now expecting the next round of stimulus to keep them down and protect other VI. That can limit action even when circumstances change, and opportunities do come along. Which should be interesting into a real hpc, next time around.

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I guess the US will raise first and the UK soon after. At that point, it will become painfully obvious that the US has allowed it's credit bubble to burst and the UK has not. With the tide out and the UK's nether regions clearly on display, rates here will go down again soon after

In that scenario I don't think rates would go back down. People would just have to take the pain.

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There are clearly some troubling signs in the global economy, if they don't blow up rates will stay the same however the banking system can't cope with any shocks and monetary policy has failed to rescue the economy.

Kaufman suggested that in previous recessions govts had use of fiscal and monetary policy to address economic recession, from the 1980's onwards it was purely down to monetary policy and the outcome would be far from certain.

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Only fresh debt can pay down and rebalance old debt. Pump and dump. Get fresh debt against all that 'dead-money' equity (£Trillions) trapped in so many outright owner/equity rich houses, via massive hpc. Don't listen too much to what BoE say to ease VI/homeowner expectations; although now they are talking more about the pain side.

It's the banks the BoE really cares for. What use is all that dead-money equity to the banks that smug owners go on about? No use at all (except to give credence to their existing LTV positions on their balance sheets). HPC followed by a £1 Trillion in fresh mortgage lending to solvent borrowers in position to borrow, should very quickly reliquify the banks positions + governments. Banks can book x2-x4 the profits on such a vast amount of new lending; the returns over 25 years being double and more then principal lent.

Deputy BoE Governor, Broadbent.

June 11, 2014

"Andy [Haldane] is the master of the colourful phrase but on this I disagree with him," said Broadbent, who instead identified risks in the UK's housing market as the greatest threat to the country's economic outlook. He went on to say that the Bank will not directly intervene on house prices, but is instead only interested in "the rate of growth of mortgages, which is today very low".
26 November 2014

The total value of the UK's housing stock is now £5.06 trillion, according to Halifax. And it's grown in value by 57% over the past 10 years, the bank says. That equates to an average £79,262 rise in the value of each UK household in the past decade. Interestingly a third of the total rise in the last decade has come in the past year alone. Over the last 12 months the value of the UK’s private housing stock has grown 14% or £630 billion – the fastest annual growth since 2002. Regionally, London and the south east accounted for more than half of the total growth recorded in this time, with values rising £217 billion and £123 billion respectively.

[..]UK households today are worth £3.76 trillion more than the total value of outstanding mortgage debt. This is the equivalent to an average of £162,510 worth of equity per household in the UK.

http://home.bt.com/lifestyle/money/mortgages-bills/value-of-uk-homes-passes-5-trillion-11363945577432

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Oil still falling today. Equities following.

I'm not ruling out anything. The CPI figures for the next few months may fall well below target forcing the BoE's hand, although they seem to be a law unto themselves and may postpone any moves until after the election to appease their paymasters.

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No.

I already know there is no limit to the expectations of house price inflation glory for those on the HPI side. However we should be careful to not believe VI intervention-protection measures are unlimited.

My private theory, years of the authorities bailing out losing positions, supporting failures, and denying opportunity for renter/savers waiting for value, leaves the renter/savers more depleted of noradrenaline in the brain, together with other psychological effects.

Occurs with participants in lab maze experiments, where they are continually blocked and frustrated (sometimes via direct intervention to deliberately prevent them bettering themselves, just as they think an opportunity ahead, barrier slide downs blocking them - by the overseers), until they eventually stop trying and believe it's all hopeless.

In housing market, maybe similarly leaving those priced out renter-savers apathetic, feeling wiped out, and convinced that market is hopeless and can't/won't change. Always now expecting the next round of stimulus to keep them down and protect other VI. That can limit action even when circumstances change, and opportunities do come along. Which should be interesting into a real hpc, next time around.

That's a very interesting viewpoint re brain drain Britain!

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Aren't they focussing on wage growth these days ?

I suspect cpi will trend to 0.9%. Those energy companies won't be cutting. Probably be raising prices in time for Millibands price freeze. I am not sure where the competition review is. I guess its like the Heathrow review. Reports post election.

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... I suspect a rate cut is more probable than a rise.

Would the government countenance any action before a general election or would this be seen as admitting weaknesses in the economy?

No... because cutting an already low rate of 0.5% would just look pathetic, and make "the recovery" sound like more of a sham than it already is. 0.5% is an "emergency rate", so what message does a lower rate signal? Crisis?

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Bumping this in the light of today's warning from Carney concerning imminent deflation.

I still think the "independent" BoE will make a surprise cut just before the election. The further release of OAP bonds may well be political cover for this - i.e. to keep the grey vote sweet.

Edited by InlikeFlynn

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However, in both his letter to the chancellor and the inflation report, Mr Carney outlines the risks to the economy, which include deflation being more persistent than forecast.Last Updated at 12 Feb 2015, 14:06

In that case, he said, the Bank was ready to cut interest rates if necessary or expand the Bank's stimulus programme, known as quantitative easing.

The Bank's base rate has been at a record low of 0.5% for nearly six years.

Mr Carney also warned that inflation could be greater than forecast if the extra stimulus provided by low oil prices were to boost the economy more sharply than expected, in which case the Bank could raise rates sooner than forecast.

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I still think the "independent" BoE will make a surprise cut just before the election. The further release of OAP bonds may well be political cover for this - i.e. to keep the grey vote sweet.

That would be very risky as it would give the opposition the ammunition to say that there's panic and nothing is fixed. The government wouldn't want any dramatic economic news during the campaign.

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That would be very risky as it would give the opposition the ammunition to say that there's panic and nothing is fixed. The government wouldn't want any dramatic economic news during the campaign.

Good point, although they might emphasise that it is a "global" phenomenon and pin the blame on the EU! In any case the electorate as a whole does not seem to be overly concerned by deflation. The extension of the OAP bonds has made me wonder if the plan is to pull something out of the hat for the election. Tory chancellors always used to favour a pre-election rate cut and George Osbourne likes surprises: witness his pension reforms.

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