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deano_54321

Interest Rates, Can Someone Explain For Me Again!?

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Sorry if i seem dumb.

I know that the BoE are stuck between a rock and a hard face when it comes to interest rates, but what stops them from just happily dropping it if house prices start to crash? I did read the reasons on here some time ago but seem to have lost that bit of my memory!

:blink:

Thanks Guys and Gals! :lol:

Deano

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Intrest rates have a direct impact on the value of our currency abroad.

Lower the rates and the pound plummets, as we import more than we export we have to pay more for the imports widening the trade balance.

In addition investors leave the UK as the returns are lower.

Lift the rates, and business goes under, layoffs, and more imports as the goods imported are more affordable.

There has to be a balance, and it is very very fine.

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Well you are right.

In fact for those who dont own a house its a double whammy.

You are paying for low interest rates yet do not have a mortgage.

You are paying for it by the government bringing in cheap labour to keep inflation low, to keep interest rates low.

So not only do you now earn less, you dont get the benefit of low rates, or the benefit of capital gains.

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Sorry if i seem dumb.

I know that the BoE are stuck between a rock and a hard face when it comes to interest rates, but what stops them from just happily dropping it if house prices start to crash? I did read the reasons on here some time ago but seem to have lost that bit of my memory!

:blink:

Thanks Guys and Gals! :lol:

Deano

It is a terribly difficult decision to make. For example raising UK interest rates means:

1) Higher interest payments on debt and mortgages reduces spending.

2) Higher government debt interest payments.

3) Investors buy £ as they generate higher yields. The price (exchange rate) rises. Imports are cheaper and exports more expensive, affecting inflation, the trade balance and demand.

4) Business investment in fixed assets is more expensive.

Then trying to look at the effects of all this on debt, inflation, house prices, exchange rates, competitivness, the balance of trade and the government books.

And then the effects of everything on consumer and business psycology / confidence.

If that isn't bad enough, many of the effects have various time lags before taking effect, often of many months. Then there is the question of what to do about the 'two tier' UK economy, where certain areas seem to require different interest rates. Sometimes the South-East can be in danger of overheating with inflation, while other regions suffer low demand and job losses.

And then try setting a single interest rate across a dozen or more different countries each with different economic challenges and government tax policies!

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Sorry if i seem dumb.

I know that the BoE are stuck between a rock and a hard face when it comes to interest rates, but what stops them from just happily dropping it if house prices start to crash? I did read the reasons on here some time ago but seem to have lost that bit of my memory!

:blink:

Thanks Guys and Gals! :lol:

Deano

Just like they did in Japan - dropped them to 0%.

And property is still at half its 1990 value.

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I think we should drop the comparisons with Japan.

Their problems are much to do with politics and geographical location, nothing to do with economics.

They are in their current position for a simple reason, they were in the past people to do business with, however the world recession of the 80's put pay to that and now they are old hat.

They produce very little locally, the car business is in turmoil, and they are a small island off the coast of China.

So they are between a rock and a hardplace. They could have had it so good,but they got greedy.

They wanted the worlds business, but refused to accept imports, now they have been blackballed by the men in grey suits.

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Intrest rates have a direct impact on the value of our currency abroad.

Lower the rates and the pound plummets, as we import more than we export we have to pay more for the imports widening the trade balance.

In addition investors leave the UK as the returns are lower.

Lift the rates, and business goes under, layoffs, and more imports as the goods imported are more affordable.

There has to be a balance, and it is very very fine.

There is no balance, that is the problem, it is like a see-saw, a market and goes up and down.

But all the time the global rates are going up the pressures are the same on the £, sooner or later we have to follow suit.

There was big relief yesterday from a certain poster when it was posted that US rates were not going above 5%, why, cos he knows the UK would have to follow suit, but if the US rate goes another notch, we will be under further pressure to follow, if not the pound tanks.

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Sorry if i seem dumb.

I know that the BoE are stuck between a rock and a hard face when it comes to interest rates, but what stops them from just happily dropping it if house prices start to crash? I did read the reasons on here some time ago but seem to have lost that bit of my memory!

:blink:

Thanks Guys and Gals! :lol:

Deano

BoE minutes are released on the 22nd at 9:30, these will probably give the best hint of the direction of IRs. Whichever way they go, I think they will tip the market off well in advance.

I think they may well be on hold for the time being. Not too sure about a cut as the houseing market is picking up enough to cause Merv discomfort.

http://www.bankofengland.co.uk/

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IRs don't HAVE to go anywhere.

They will only go somewhere if there is a need to fight inflation (upwards) or stimulate investment and spending (downwards).

So, the most likely outcome for the rest of this year is 4.5% all the way.

The economy is expanding at roughly its average rate, inflation is contained and house prices are rising gently - almost too good to be true.

Until IRs rise significantly, you won't get your HPC.

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Guest muttley

IRs don't HAVE to go anywhere.

They will only go somewhere if there is a need to fight inflation (upwards) or stimulate investment and spending (downwards).

So, the most likely outcome for the rest of this year is 4.5% all the way.

The economy is expanding at roughly its average rate, inflation is contained and house prices are rising gently - almost too good to be true.

Until IRs rise significantly, you won't get your HPC.

You're ignoring global factors,IUN.

And rising unemployment.

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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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