Economist - Sharp Rise In Us Interest Rates Would...

[boom_and_bust]

From the blog:

http://www.economist.com/agenda/displaysto...tory_id=5320706

Hi,

I'll post again my other currency related thread here. The fact is, the rest of the world is moving in certain directions. That doesn't mean we will, it does mean that a status quo seems difficult to maintain for us, from here. These other nations are worried about inflation - even if there is coverage of falls in some of their real estate markets - they feel the need to make movements. If there is inflation brewing in the world economy, we get affected in someway, eitherway. We don't live in isolation, we are a trading nation, we rely heavily on foreign currency to finance our trade defecits. We have also had a historical, economic link with our cousins in the US. One thing for sure, either way, its difficult to see how we plod along in isolation to the rest of the world without some kind of change coming our way. Unless we see interest rate falls coming our way and then what does that say? That the rest of the world is wrestling inflation while we fear deflation? The United Kingdom of Japan for the next decade? Maybe that is the ten years of stagnation we hear about when wages catchup with property prices, just like Japan a decade ago infact! Either way, the changes are a' blowing in the wind.

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Interesting to see where BoE go after xmas. Over the past month we have seen ;

14/12/2005 - US raises rates .25%

08/12/2005 - New Zealand Raises Rates .25%

06/12/2005 - Canada raises rates .25%

01/12/2005 - European Union raises rates .25%

28/11/2005 - Israel raises rates .5%

??/??/2006 - Australia widley expected to raise after christmas

It doesn't mean a rise in UK rates is nailed on but alot of other countries are thinking the opposite and worrying about inflation alot more than BoE, even in US, Australia and NZ where house price falls have already been aired across the media. You have to think as well that the UK, like the US, is very dependent on foreign cash inflows to sustain it's trade defecits. And if the recent fall in the doctored headlined inflation rate benefited from a fall in oil prices, a fall in sterling will bring the inflation figure back upwards again on that basis. Less and less scope to cut rates for Gordon, plenty of incentives to raise them. First few months of next year could be very interesting to see what their next step is.

Boomer

Edited December 14, 2005 by boom_and_bust