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Sisyphus

B O E Quarterly Inflation Report

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Generally all very positive. :huh: So why is UNemployment rising so quickly?

The market believe it too Stirling up strongly just as the Report was released.

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Released today

link

haven't had a chance to read it yet

This is very important.

We are not going to see any IR cuts in the near future. However, it also suggests that they are going to be on hold for quite a while too before going up. Good news for HPC.

Short Stirling contracts have jumped back up today (the move yesterday was pure speculation on the BOE report being weak) and Stirling vs $ has rebounded.

The CPI figure yesterday was a red herring.

Following a soft patch, output growth recovered towards the end of 2005. Consumer spending revived,

though business investment growth appeared lacklustre. The pace of expansion in the United Kingdom’s

major export markets remained firm. In the Committee’s central projection, under the assumption that

official interest rates follow a path implied by market yields, four-quarter GDP growth picks up to around

its historical average.

The recent period of soft growth appears to have led to a modest increase in spare capacity within

companies and a slight easing in the labour market. Pay pressures remained benign, but energy prices

rose sharply and import price inflation edged higher. CPI inflation fell to 1.9% in December. In the

central projection, inflation remains close to the 2% target over the forecast period. The risks are a little

to the downside for growth and broadly balanced for inflation.

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Guest The_Oldie
The housing market

Recent data continued to point to a modest pickup in the

housing market. House prices edged up in late 2005, having

been broadly flat over the first half of the year (Chart 1.4).

Indicators of activity along the house purchase timeline —

which runs from first enquiries to house purchase — suggest

that the recovery may persist in the near term (Table 1.A).(2)

Houses are similar to other assets, in that they can be valued

according to the discounted stream of future income or of the

benefits that they generate.(3) For landlords, that stream of

income is rent. For homeowners, the benefits are the housing

services that they consume by living in their own house. If

current market interest rates were used to discount those

future rents or housing services then the decline in long-term

rates would justify a higher level of house prices than before.

From the above, it would seem that the BOE do not see any necessity to prop up the housing market with a rate cut, at least in the short to medium term.

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Interesting to see the impact of immigration on salaries - salaries dropping substantially in hotel and catering sectors - basics and overtime. Even so, a major jobs report, released the other day, found that general wage inflation has picked up.

Edited by gruffydd

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From the above, it would seem that the BOE do not see any necessity to prop up the housing market with a rate cut, at least in the short to medium term.

I surprised this hasn't caught the attention of more people. There was mass panic on here when TTRTR was suggesting that rates might be cut. Well, he had his 24 hours of fun.

The fact that the BoE reduced lates in the Autumn was due to what we're seeing now.

We've been through the danger period and are still at 4.5%. This is the bottom of the cycle.

They'll stay on hold until high commodity prices filter through into prices of strawberries and lettuces in Tescos, and we start to see wage inflation picking up and then we'll start to see some IR rises.

http://today.reuters.co.uk/investing/finan...-MIDSESSION.XML

LONDON, Feb 15 (Reuters) - Sterling rose on Wednesday after the Bank of England's quarterly inflation report suggested that interest rates are likely to remain on hold for some time to come, rather than hinting at a rate cut as some had expected.

Here it is in the main-stream press:

http://business.guardian.co.uk/story/0,,1710374,00.html

Hopes of an early cut in interest rates were today fading as the Bank of England stuck to its forecasts for growth and inflation.

In its quarterly inflation report, the Bank said inflation was projected to remain close to its 2% target over the next two years.

The Bank expected growth to pick up above its historical average in the near term, reflecting stronger consumer spending, before easing back in the second year of its forecasts.

:lol::lol::lol::lol:

Analysts said the report was more hawkish on inflation than expected and indicated that the Bank was in no hurry to cut interest rates. Borrowing costs have not changed since August, when the monetary policy committee lowered them to 4.5%.

"The immediate impression is that the inflation report is pretty neutral, and it does little to encourage the view that the MPC could trim rates in the immediate future," Howard Archer, of the consultancy Global Insight, said.

Although the Bank said its central projection was for inflation to stay close to its target, the governor, Mervyn King, remained cautious.

"Before any of you are tempted to get carried away with the flat profile for the central projection for inflation, let me remind you that the chance that inflation will remain so close to the target throughout the forecast period is negligible," he warned.

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They'll stay on hold until high commodity prices filter through into prices of strawberries and lettuces in Tescos, and we start to see wage inflation picking up and then we'll start to see some IR rises.

But by then we'll be living on rats and dirt from the local park, so the strawberries and lettuce will be removed from CPI. :P

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I surprised this hasn't caught the attention of more people. There was mass panic on here when TTRTR was suggesting that rates might be cut. Well, he had his 24 hours of fun.

The fact that the BoE reduced lates in the Autumn was due to what we're seeing now.

We've been through the danger period and are still at 4.5%. This is the bottom of the cycle.

They'll stay on hold until high commodity prices filter through into prices of strawberries and lettuces in Tescos, and we start to see wage inflation picking up and then we'll start to see some IR rises.

I read it as there was not much chance that it was not likely that inflation would be a problem but there is more chance that the economy will under perform.

If the economy is slow to pick up then they will lower interest rates (I think the economy is fu*ked and 2% IR here we come)

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Interesting to see the impact of immigration on salaries - salaries dropping substantially in hotel and catering sectors - basics and overtime. Even so, a major jobs report, released the other day, found that general wage inflation has picked up.

Merv covered this in the press conference, the key factor is that it's largely unskilled labour.

If only just a few were cut price prize winning economists from Poland.

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I read it as there was not much chance that it was not likely that inflation would be a problem but there is more chance that the economy will under perform.

If the economy is slow to pick up then they will lower interest rates (I think the economy is fu*ked and 2% IR here we come)

I think that if the BoE saw it that way then they would reduce interest rates.

The FED were saying similar things last year and now look what's happened.

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I think that if the BoE saw it that way then they would reduce interest rates.

The FED were saying similar things last year and now look what's happened.

Do the fed use the CPI index?

I think that they are genuinely worried about inflation as they know they have problems with the $ which will collapse if they don’t make it a good investment

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Do the fed use the CPI index?

I think that they are genuinely worried about inflation as they know they have problems with the $ which will collapse if they don’t make it a good investment

Yes, they do use CPI, I believe.

If the market got a sniff of the fact that CPI was not representing inflation, the £ would collapse.

CPI is not perfect, I'll admit that, but it does represent inflation in some way. And it's on the way up.

Have a look at this:

LONDON, Feb 15 (Reuters) - Low long-term interest rates, a particularly acute phenomenon in Britain, have created an uncomfortable situation for pension funds and for monetary policy, a top Bank of England official said on Wednesday.

BoE Executive Director for Financial Markets Paul Tucker noted that while pension funds are currently striving to be more conservative in their investments, hedge funds continue to pursue risk, creating large moves in financial markets.

Tucker's remarks about long-term rates follow similar comments from other Monetary Policy Committee members following a speech by BoE Governor Mervyn King at the start of the year hinting that the situation can't go on forever.

"Is this going to be sustainable over the medium to long run? Probably not. Will the adjustment be smooth or abrupt? I don't think anybody can have any idea about that," Tucker said.

Look. If that's not evidence that the BoE see IRs moving up in the medium-term, I don't know what is.

http://today.reuters.co.uk/investing/finan...TAIN-YIELDS.XML

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Yes, they do use CPI, I believe.

If the market got a sniff of the fact that CPI was not representing inflation, the £ would collapse.

CPI is not perfect, I'll admit that, but it does represent inflation in some way. And it's on the way up.

I charted CPI vs RPI and PPI y'day on my BBerg terminal - since August '99 CPI has risen by c. 48% vs over 100% for RPI - PPI was a lot higher. Unfortunately I can't download the data here but it's an interesting chart.

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I charted CPI vs RPI and PPI y'day on my BBerg terminal - since August '99 CPI has risen by c. 48% vs over 100% for RPI - PPI was a lot higher. Unfortunately I can't download the data here but it's an interesting chart.

Yes, if your criterion is 2 +/- 1% on CPI then you have to stick to that.

A feature of a stable economy with a strong currency is that they have an accepted measure of inflation in place and keep it within certain bounds. The US and UK satisfy this criteria.

Edited by karhu

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Yes, if your criterion is 2 +/- 1% on CPI then you have to stick to that.

A feature of a stable economy with a strong currency is that they have an accepted measure of inflation in place and keep it within certain bounds. The US and UK satisfy this criteria.

yes, their remit is to target CPI. They have no control on the ONS.

BOE independance is actually very limited.

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The new Fed Chairman has been speaking. He sees more upside risks to inlfation:

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke said on Wednesday the U.S. economy was running so close to capacity that it faced heightened risks of an outbreak in inflation that could require higher interest rates to tame.

In his first extensive remarks since taking office two weeks ago, Bernanke appeared to be making an effort to establish credentials as an inflation "hawk" by stressing the need to keep price pressures contained.

"The risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately -- in the absence of countervailing monetary policy action -- to further upward pressure on inflation," Bernanke said in remarks prepared for delivery to the U.S. House of Representatives Financial Services Committee.

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"The housing market

Recent data continued to point to a modest pickup in the

housing market. House prices edged up in late 2005, having

been broadly flat over the first half of the year (Chart 1.4).

Indicators of activity along the house purchase timeline —

which runs from first enquiries to house purchase — suggest

that the recovery may persist in the near term (Table 1.A).(2)

Houses are similar to other assets, in that they can be valued

according to the discounted stream of future income or of the

benefits that they generate.(3) For landlords, that stream of

income is rent. For homeowners, the benefits are the housing

services that they consume by living in their own house. If

current market interest rates were used to discount those

future rents or housing services then the decline in long-term

rates would justify a higher level of house prices than before."

The question is would it sensible to use current rates in the discounting model? Combined with the following:

"Tucker's remarks about long-term rates follow similar comments from other Monetary Policy Committee members following a speech by BoE Governor Mervyn King at the start of the year hinting that the situation can't go on forever.

"Is this going to be sustainable over the medium to long run? Probably not. Will the adjustment be smooth or abrupt? I don't think anybody can have any idea about that," Tucker said."

Look. If that's not evidence that the BoE see IRs moving up in the medium-term, I don't know what is.

It looks like the answer is NO. Hence it would be unwise to use today's low rate in a discounting model. Using a higher rate means that houses are way overvalued.

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Looks like Brown has found himself on a spit at Bernankes house warming BBQ.

Yep, he couldn't see this one coming. What an idiot.

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If the market got a sniff of the fact that CPI was not representing inflation, the £ would collapse.

The market knows it's a fiddle, but they love cheap money, look at all the M&A activity and private equity running on the back low rates, so who's complaining? Look at the Barber Boom in the 70's, the market loved all the liquidity being pumped through.

Slater Walker were the 3i of their day.

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The market knows it's a fiddle, but they love cheap money, look at all the M&A activity and private equity running on the back low rates, so who's complaining? Look at the Barber Boom in the 70's, the market loved all the liquidity being pumped through.

Slater Walker were the 3i of their day.

I think the BoE see this 'Russian doll' of fiddles too!!

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I think that the BBC should be made more 'independent' by having their licence fee (and hence salaries, expenses) pegged to increase at no more than the offical rate of CPI.

That would have the journalists swarming over the weighings and methodology and keeping the CPI more honest as a measure of inflation.

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I think that the BBC should be made more 'independent' by having their licence fee (and hence salaries, expenses) pegged to increase at no more than the offical rate of CPI.

That would have the journalists swarming over the weighings and methodology and keeping the CPI more honest as a measure of inflation.

Like it :)

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I think that the BBC should be made more 'independent' by having their licence fee (and hence salaries, expenses) pegged to increase at no more than the offical rate of CPI.

That would have the journalists swarming over the weighings and methodology and keeping the CPI more honest as a measure of inflation.

Lol, in a way I think they're already aware of this, the Beeb has been running a structural deficit for years despite continious "above inflation" rises. So it seems their recent 4.2% rise in the fee is barely keeping pace with their running costs, despite the "2.3% rise above inflation".

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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