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maffo in oxford

What will cause the base rate to rise in the UK?

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The USA has risen theirs a few times, so when/why/what will cause the UK to follow suit? I personally can't see why the B.O.E. will raise for a long, long time due to the UK facing (imo) a deflationary collapse.

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4 hours ago, maffo in oxford said:

The USA has risen theirs a few times, so when/why/what will cause the UK to follow suit? I personally can't see why the B.O.E. will raise for a long, long time due to the UK facing (imo) a deflationary collapse.

The economy has to be deemed stable.

1. Sustainable economic growth (International reputation).

2. Unemployment & wage growth 

3. Consumer Spending (Secured / insecured borrowings)

4. Inflation (Sterlings value impacts the prices paid for imported goods & services)

5. Macro impacts to the UK economy from geographical events (Wars; natural disasters etc...)

Point 3 is a show stopper. They need to maintain low base rates for 30 years approx to chew away the flood of credit introduced into the markets.

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20 minutes ago, maverick73 said:

The economy has to be deemed stable.

1. Sustainable economic growth (International reputation).

2. Unemployment & wage growth 

3. Consumer Spending (Secured / insecured borrowings)

4. Inflation (Sterlings value impacts the prices paid for imported goods & services)

5. Macro impacts to the UK economy from geographical events (Wars; natural disasters etc...)

Point 3 is a show stopper. They need to maintain low base rates for 30 years approx to chew away the flood of credit introduced into the markets.

Won't low base rates create more cheap credit i.e a vicious circle?

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30 minutes ago, maverick73 said:

The economy has to be deemed stable.

It's not in our hands though - the days when the UK dictated world economic events are long since gone.

If US interest rates keep climbing, eventually we'll import so much inflation the BoE will have to follow suit. If inflation gets beyond 5% here, things start to get interesting IMO. We have to sell our debt at an attractive interest rate too.

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Historically the UK rate has always followed the U.S. rate very closely... will that not be the case now and if not why?

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The UK is an economic basket-case. Interest rates could be stuck at 0% for the next twenty/thirty years. Easy.

The yield on Switzerland's 50-yr govt bond fell below zero last year. Fifty years!

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39 minutes ago, knock out johnny said:

Run on the pound?

Indeed. If petrol cost £2 a litre people would sit up.

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I think we will follow the U.S. Eventually. There will be a magic number that the U.S. Rates hit before we start to raise. 

 

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We are heading for a complete collapse of the global currency systems and are well past the point of return.  The only questions left for me are when and what will replace it.

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UK rates can't rise because of humongous private sector debt which is producing inflation disguised as growth.  Carney doesn't care about inflation which is likely to go to 4% near term as measured while wages stagnate. We're likely to see more QE to keep things going until this bizarre model self destructs.

The US is in a much better position because of its size,  allowing property prices to fall and so less private debt, and has the reserve currency. 

We are screwed.

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2 hours ago, rantnrave said:

It's not in our hands though - the days when the UK dictated world economic events are long since gone.

If US interest rates keep climbing, eventually we'll import so much inflation the BoE will have to follow suit. If inflation gets beyond 5% here, things start to get interesting IMO. We have to sell our debt at an attractive interest rate too.

Inflation was over 5% in 2011 and the base rate didn't change.

The BoE has done plenty of QE to buy our debt and then rolls it over. Banks also have to buy our debt for capital requirements and why wouldn't they when they can presumably borrow cheaper off the BoE and so arb the difference, for free money courtesy of taxpayers? 

 

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1 hour ago, zugzwang said:

The UK is an economic basket-case. Interest rates could be stuck at 0% for the next twenty/thirty years. Easy.

The yield on Switzerland's 50-yr govt bond fell below zero last year. Fifty years!

Sorry I read that Swaziland.

That picture of rates here never moving is a dangerous illusion. Continued vigilance won't protect UK's bond sales if the States continues raising.  

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2 hours ago, rantnrave said:

It's not in our hands though - the days when the UK dictated world economic events are long since gone.

If US interest rates keep climbing, eventually we'll import so much inflation the BoE will have to follow suit. If inflation gets beyond 5% here, things start to get interesting IMO. We have to sell our debt at an attractive interest rate too.

Owing to the way imported inflation is calculated this only presents itself as a 12 month figure. ERPT (exchange rate pass through) information is not a big concern tbh. What would create an increase is if wages started to rise and inflation started to take hold. At this point you;d start to see policies to combat it.

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Just now, adarmo said:

Owing to the way imported inflation is calculated this only presents itself as a 12 month figure. ERPT (exchange rate pass through) information is not a big concern tbh. What would create an increase is if wages started to rise and inflation started to take hold. At this point you;d start to see policies to combat it.

inflation* not information.

12 months is significant because:

1. The BoE looks two years ahead

2. Inflation is based on a 12 month calculation. Once any curecy movement owing to base rate is felt the inflation relating to that is felt only for 12 months. IOn three months time the inflation resulting from the fallen £ will stop being included in the numbers.

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i think a lot of what the Bank Of England say is just to inspire confidence in borrowing. I think they will raise perhaps as early as this winter. Probably around the time nationwide start to look shaky. 

Edited by jiltedjen

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8 hours ago, maffo in oxford said:

The USA has risen theirs a few times, so when/why/what will cause the UK to follow suit? I personally can't see why the B.O.E. will raise for a long, long time due to the UK facing (imo) a deflationary collapse.

They claim the trade-off is between employment and purchasing power. Raising rates would lead to an increase in unemployment and they claim to have a remit to prevent that occurring (they are actually acting in breach of their statutory remit). But if the decrease in purchasing power becomes a cause of more significant instability, they say they'll review the situation.

They are lying obviously, as mentioned above neither the government nor the population can afford it and so the Bank will wait until they have absolutely no other option.

But those are the metrics to watch - employment / unemployment, RPI / CPI, purchasing power and GDP.

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58 minutes ago, jiltedjen said:

i think a lot of what the Bank Of England say is just to inspire confidence in borrowing. I think they will raise perhaps as early as this winter. Probably around the time nationwide start to look shaky. 

I agree with that, if they give a hint of rising rates being imminent, then consumer confidence falls and the economy with it. I would expect them to start anytime after the election.

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1 hour ago, Blod said:

Sorry I read that Swaziland.

That picture of rates here never moving is a dangerous illusion. Continued vigilance won't protect UK's bond sales if the States continues raising.  

That's what the Term Funding Scheme is for. Debt without borrowing. It's how Hammond and Carney brought the deficit down to £52bn last year. An additional £50+bn of debt was created via the TFS between August '16 and March '17 but not added to the PSNB.

Edited by zugzwang

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The Fed is tightening into a recession because they missed out a whole business cycle.They think all the indicators flashing red now are just a blip and think more rate increases will be fine.They are going to turn a recession into something much much worse.It wont be interest rates that destroy UK house prices at first (and most others assets) it will be the deflationary collapse dead ahead.Banks will be lending nothing because they will be going under again.Maybe even just later this year.

Of course the massive printing that comes then will kick in a reflationary cycle and i fully expect them to panic and go too far.That should see interest rates following inflation higher for many years,probably around 2019/20 onwards.Houses should keep falling then,depending on how far they go down during the deflationary collapse.Deflationary collapse followed by the 1970s.That sounds like a barking mad theory,but its how i see it.Only the size and speed might differ.

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The bond market sets interest rates normally, not much yield there at the moment. How can interest rates rise when it would instantly bankrupt countries that have to pay interest on record debt levels ? If they want to stop consumer spending they'll just withdraw access to easy money, so no need for higher interest rates. Oops too much truth.

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