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tatty

How Does Us Ir Rising Affect Us If They Started From A Lower Base?

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I'm having this discussion elsewhere and it's a question they've posed. If the fed and the ECB raise their IR's from a lower rate then surely we wouldn't need to raise until there was parity.

Is this correct?

Awful phrasing of the title header.

I've just seen that in fact the US base rate is the same as ours but the ECB is 2.25%.

Which one matters the most in the context of UK rates?

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Each currency/economy has a rating from the international markets.

Some currencies aren't viewed as particularly attractive for whatever reason (instability, national debt, inflation, low productivity growth...) and need to maintain a higher interest rate, in order to attract investors to government bonds.

Broadly, Sterling needs to pay a higher rate, because otherwise, the markets think that it should depreciate against the dollar/euro. One way to see why is that UK labour productivity growth is consistently worse than the euro block and the US. Thus, the labour component in production consistently gets more expensive. The easiest way to cut wages is to allow the current to slide a little.

So, no, waiting till the differentials go away can't be done without side-effects on the markets. If we wait, the pound will start to fall, and prices will rise.

As a former minister told me last week, "inflation" is at 2% because government inflation is about 5% and chinese manufacturing is lowering non-gov prices. That can't last

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As a former minister told me last week, "inflation" is at 2% because government inflation is about 5% and chinese manufacturing is lowering non-gov prices. That can't last

Nice info , any more?

Dames :)

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The BoE base rate and Fed target rate are now at parity: 4.5%.

The Fed rate has only been above the BoE for two short periods in recent history: 1984 and 2000. In both those years the pound depreciated significantly against the dollar.

If the Fed raises its rate above the BoE, as seems likely it looks to me like the pound wil fall in value.

frugalista

To answer your original question I think most UK trade is with the EU, but the investment, banking links etc. are with the US.

frugalista

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  • 335 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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