UK Interest rates... where will it go within 12 months? I suspect 2-4%

[scottbeard]

15 hours ago, Si1 said:

Interest rates will probably remain low

In the U.K. I agree.  We haven’t been giving out printed money stimulus like the US. Not saying they wouldn’t rise AT ALL but bank rate will still be under 1% a year from now. 

[zugzwang]

4 minutes ago, scottbeard said:

In the U.K. I agree.  We haven’t been giving out printed money stimulus like the US. Not saying they wouldn’t rise AT ALL but bank rate will still be under 1% a year from now. 

Of course we have!

Sunak's run up a deficit of £350bn for 2020/21. That's 17% of GDP!

[TheCountOfNowhere]

1 hour ago, Si1 said:

Yeah they'll remain low

I'll be surprised if those mortgage rates aren't at 4-5% by 2025.

That's a whole load of pain for anyone buying now with a low IR fixed.

[TheCountOfNowhere]

55 minutes ago, zugzwang said:

Of course we have!

Sunak's run up a deficit of £350bn for 2020/21. That's 17% of GDP!

Who'd profited....let me rephrase that...why chancellor with 10 houses and Prime Minister with 20 houses have profitted.

When the young realise what's going on they will hopefully get very very angry.

[Si1]

2 minutes ago, TheCountOfNowhere said:

I'll be surprised if those mortgage rates aren't at 4-5% by 2025.

That's a whole load of pain for anyone buying now with a low IR fixed.

Maybe by 2025

[TheCountOfNowhere]

1 minute ago, Si1 said:

Maybe by 2025

Say a capital one credit card adveritised last night, something like 40% APR 

[simon2]

In the very short run ie 1 year there is nothing forcing rates up that I can see. Quite the opposite.

The longer run may be different and I think its a skewed bet, way more likely it'll be +2% more from here than -2%.

But seems like ample room for props, especially into the future. £200 of UBI a month in digital currency which only can be redeemed against interest?

TBH there is much to be said for letting the cycles play out itself and let markets find their own level.

But the way it is, people's own circumstance and self-interest overpowers everything else. This is compounded by the short-run nature of politics.

Most people would agree that some kind of prudence has to follow the decision to basically print lost output (furlough), yet nobody is going to vote for a party which promises austerity, and they would cheer generosity, even though they know the country spends more than it earns.

Similarly governments know some things are easy votes and have no real ramifications. Stuff like the mortgage guarantee costs nothing now, and if it does go tits up, chances are it'll be another governments problem to sort out.

[TheCountOfNowhere]

2 hours ago, simon2 said:

In the very short run ie 1 year there is nothing forcing rates up that I can see. Quite the opposite.

 

 

           

 

https://www.teletrader.com/us-inflation-at-12-year-high-of-4-2-in-april/news/details/55459952?internal=1

 

US inflation at 12-year high of 4.2% in April

 

       

 

Just how stupid do people have to be to think this is not related to low IRs and there wont be serious problems with all the money printing

 

Edited May 12, 2021 by TheCountOfNowhere

[simon99]

55 minutes ago, TheCountOfNowhere said:

 

           

 

https://www.teletrader.com/us-inflation-at-12-year-high-of-4-2-in-april/news/details/55459952?internal=1

 

US inflation at 12-year high of 4.2% in April

 

       

 

Just how stupid do people have to be to think this is not related to low IRs and there wont be serious problems with all the money printing

 

Ultimately there will, but when is the question. The can has been kicked down the road for about 15 years now. I think the central banks have demonstrated time and time again that they will tolerate inflation and will slash rates, or keep them low at every opportunity. 

[Fromage Frais]

50 minutes ago, TheCountOfNowhere said:

 

           

 

https://www.teletrader.com/us-inflation-at-12-year-high-of-4-2-in-april/news/details/55459952?internal=1

 

US inflation at 12-year high of 4.2% in April

 

       

 

Just how stupid do people have to be to think this is not related to low IRs and there wont be serious problems with all the money printing

 

Well then maybe a rush to houses is a sign that some feel inflation is coming.....

Difficult to say as all this stimulation is pushing on a string as the world is clogged up with corona issues and overhangs...

Take staycations what was £80 a night pre corona is now well over £100 a night but once the market snaps back.... best not to have made plans on that 100% full £100+ a night business model.

So either "see through it" and the tax cuts where made to property stamp duty because underlying its screwed.

or

Its not and a lot of people will be locked into huge mortgages at the base of an interest rate rising cycle.

Property is not the worst asset during inflations as you can jack the rent up every xx months or so.  However there cannot be anything worse than a 40 year mortgage at low x percent with the slow steady death of rate rises.

Where is that BOE report which stated high prices are all down to IR I think i saw in there a rise of 1% would take a third off or something insane like that.

 

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

the US printed a 4.2 per cent year-on-year rise CPI in April and up from 2.6 per cent in March. Yet there are still dimwits who seem to think this won't have an impact here or elsewhere... plus there's rocketing factory gate inflation in China. 

[dugsbody]

7 minutes ago, gruffydd said:

the US printed a 4.2 per cent year-on-year rise CPI in April and up from 2.6 per cent in March. Yet there are still dimwits who seem to think this won't have an impact here or elsewhere... plus there's rocketing factory gate inflation in China. 

A shallow view on this does no good.

Is this structural or temporary? If it's temporary (which I definitely believe it is) then most countries will ride it out.

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

35 minutes ago, dugsbody said:

A shallow view on this does no good.

Is this structural or temporary? If it's temporary (which I definitely believe it is) then most countries will ride it out.

structural can become permanent once it beds in, hence the concern in the markets! Believe what you will... the market jitters suggest most don't agree with you. 

[simon2]

Problem is nobody knows if it's temporary or not. 

An analogy is like banging the ketchup bottle - you get nothing for ages and then too much comes out. It's the same with inflation - we've had none for ages, to think that the banks will be able to control it is fanciful to me. It's likely that too much will come out, but then is the time to take measures. 

The scam is of course inflation has been here already, it's just in things that aren't in the measures. Like houses.

Do we not remember Carney and his 'unreliable boyfriend' stuff? If you ask me it's more dim to start thinking they Bank will start shitting themselves over a few months of data. The past decade has said that they'd do anything to avoid raising, even going back on their targets, and while the inflation can be described as transitory then that provides the cover. 

Once you start getting months and months of it, that puts the pressure on. But I believe it'll be over a year before that happens. 

Inflation will be a big problem later in the decade. But not this year.

[rantnrave]

These inflation reports suggest that the UK entering NIRP is less likely than it appeared a few months ago. Beyond that, who knows? If the Emerging Markets experience a more severe second Covid wave (already happening IMO), that could dampen global demand as the Developed World returns to growth. We do know that last decade, when QE pushed RPI to over 5%, the BoE did nothing. I think we would need a calendar quarter of >5% price rises across the board before any interest rate rises.

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

1 hour ago, simon2 said:

Problem is nobody knows if it's temporary or not. 

An analogy is like banging the ketchup bottle - you get nothing for ages and then too much comes out. It's the same with inflation - we've had none for ages, to think that the banks will be able to control it is fanciful to me. It's likely that too much will come out, but then is the time to take measures. 

The scam is of course inflation has been here already, it's just in things that aren't in the measures. Like houses.

Do we not remember Carney and his 'unreliable boyfriend' stuff? If you ask me it's more dim to start thinking they Bank will start shitting themselves over a few months of data. The past decade has said that they'd do anything to avoid raising, even going back on their targets, and while the inflation can be described as transitory then that provides the cover. 

Once you start getting months and months of it, that puts the pressure on. But I believe it'll be over a year before that happens. 

Inflation will be a big problem later in the decade. But not this year.

No, the data points to real pressure to increase IRs within 3-4 months. We shall see. 

[dugsbody]

1 hour ago, gruffydd said:

structural can become permanent once it beds in, hence the concern in the markets! Believe what you will... the market jitters suggest most don't agree with you. 

Bookmark.

Let's revisit in a few years to see if it was permanent and if we rode through it.

[dugsbody]

1 hour ago, simon2 said:

Problem is nobody knows if it's temporary or not. 

What has changed structurally in our world that would make this non-temporary? 

 

[Zzzzzzzzzzzzzzzzzzzzzzzzzz]

47 minutes ago, dugsbody said:

What has changed structurally in our world that would make this non-temporary? 

 

Brexit is one factor... that structural shift will be felt for years as it unwinds... then there's Covid... again, that will take years to unwind... then there's the issue of temporary shifts becoming permanent... it ain't called an inflationary spiral for nothing. The UK is vulnerable to wage pressures in many sectors right now, as over a million workers seem to have returned home... and wage pressures feed through... then there is the boom in Asia... I could continue - perhaps listing a few dozen factors that are converging... the risk levels are rising, hence the jitters. 

[Mikhailo]

6 hours ago, gruffydd said:

structural can become permanent once it beds in, hence the concern in the markets! Believe what you will... the market jitters suggest most don't agree with you. 

When people talk about 'structural deflation/inflation' does this mean the longer term trend? So if someone is saying that inflation is going to be cyclical and deflation structural, it means they think the longer term trend is deflation?

I've seen a lot of talk about structural deflation on Twitter but couldn't find an explanation anywhere on the difference between deflation and structural deflation. 

Edited May 12, 2021 by Mikhailo

[dugsbody]

32 minutes ago, gruffydd said:

Brexit is one factor... that structural shift will be felt for years as it unwinds... then there's Covid... again, that will take years to unwind... then there's the issue of temporary shifts becoming permanent... it ain't called an inflationary spiral for nothing. The UK is vulnerable to wage pressures in many sectors right now, as over a million workers seem to have returned home... and wage pressures feed through... then there is the boom in Asia... I could continue - perhaps listing a few dozen factors that are converging... the risk levels are rising, hence the jitters. 

I don't see the explanation how those link up.

Brexit causes a hit to our economy, which the BoE responds to by lowering interest rates and printing money. COVID has caused another shock to the global economy, which has been monetised and interest rates further suppressed. 

It seems that we will have a spike in inflation, caused by several factors. Supply chains disruption, production disruption, money printing, etc.

These all seem temporary to me. Structurally, we're still becoming increasingly efficient and production and distribution and I can't see this reversing, therefore consumables will continue to deflate in real terms.

 

[Speed1987]

Inflation will continue, for some years now. They want inflation, it was obvious from all the money printing. Expect around 20-30% over the next 5 years.

They won't allow rates to rise, I'm leaning to negative rates end of 2021 start of 2022. The economy is ******ed and they need to prevent a house price crash and put more money into the hands of home owners.

Rates will not rise as it would lead to massive hardship, ethier way they will not be going above 1%. This would cause the Tories to loose voters and promote dependence, on the state for housing.

This is on the assumption a variant, takes hold and shuts down the economy later this year (highly probable). The vaccine is not as effective as promised against the original strain (lockdown stopped the spread, not the vaccine) and variants possibly only 30%. 

This is what I suspect will happen, inflation runs rampant. Those without assets particularly housing, will suffer further. Now having to look at property in cheaper areas. Those with assets will have their debt eroded, as wages trickle upwards. Mortgage and debt holders > renters and savers. Essentially their money is being transferred. 

They've already transferred money to me over the last year, they'll be transferring much more.

 

Edited May 12, 2021 by Speed1987

[simon2]

1 hour ago, dugsbody said:

I don't see the explanation how those link up.

Brexit causes a hit to our economy, which the BoE responds to by lowering interest rates and printing money. COVID has caused another shock to the global economy, which has been monetised and interest rates further suppressed. 

It seems that we will have a spike in inflation, caused by several factors. Supply chains disruption, production disruption, money printing, etc.

These all seem temporary to me. Structurally, we're still becoming increasingly efficient and production and distribution and I can't see this reversing, therefore consumables will continue to deflate in real terms.

 

TBH I believe some are, some are not. The overall measure of inflation is made up of many inputs, some of which are deflationary, some inflationary, so who wins? I think it's pretty likely that some of the inflation reflects pent-up demand, outside of that, I don't know. 

If we're talking structurally I think disintermediation from China will be a theme for some time to come. Effectively the West has imported deflation from them or other countries. 

My guess is still that house prices will appreciate relative to fiat but depreciate relative to a mixed basket of other assets.... and as I said before that's what the government want. People's intrinsic worth so tied up in property that it needs to be defended.

Most people won't understand, so I can see people buying new builds at £500k today trying to rub it in in 2025 that they're now worth £525k, asking 'where's the crash', oblivious that it's happened underneath their noses. But the thing that the government will love, is that they will be happy about it.

[A.steve]

5 hours ago, simon2 said:

Problem is nobody knows if it's temporary or not.

Not really... The people with assets to sell or debt to service known that any inflation is temporary... while those who have savings and want to acquire assets know that any argument about the temporary nature of inflation is a misrepresentation.

Edited May 12, 2021 by A.steve

[zugzwang]

5 hours ago, Speed1987 said:

Inflation will continue, for some years now. They want inflation, it was obvious from all the money printing. Expect around 20-30% over the next 5 years.

They won't allow rates to rise, I'm leaning to negative rates end of 2021 start of 2022. The economy is ******ed and they need to prevent a house price crash and put more money into the hands of home owners.

Rates will not rise as it would lead to massive hardship, ethier way they will not be going above 1%. This would cause the Tories to loose voters and promote dependence, on the state for housing.

This is on the assumption a variant, takes hold and shuts down the economy later this year (highly probable). The vaccine is not as effective as promised against the original strain (lockdown stopped the spread, not the vaccine) and variants possibly only 30%. 

This is what I suspect will happen, inflation runs rampant. Those without assets particularly housing, will suffer further. Now having to look at property in cheaper areas. Those with assets will have their debt eroded, as wages trickle upwards. Mortgage and debt holders > renters and savers. Essentially their money is being transferred. 

They've already transferred money to me over the last year, they'll be transferring much more.

 

 

They wanted to stop a recession becoming a depression, hence the borrowing. Most of the new Treasury debt has been QE'd, those excess reserves will be retained within the banking system *forever* i.e. the inflationary implications are nil. Maybe there's a spike in consumer inflation as the economy returns to full capacity, maybe there's not. The Chinese have a vast inventory of shiny crap to shift and may have to discount a lot of it to get it away. The furlough cash is being consumed frivolously not invested productively, after it's gone the housing market will be even more precariously leveraged than before. Wages follow productivity, both are going nowhere.