Telegraph: Pressure On Rates Boosts Sterling.

[CrashConnoisseur]

'Pressure on rates boosts sterling':

http://www.telegraph.co.uk/money/main.jhtm...5/cnrates05.xml

The pound has risen to a 12-month high against the dollar, as the chances of an imminent rise in interest rates increased, amid a fresh flood of strong data on the UK economy.

Sterling rose more than three-quarters of a cent to $1.8488 against the dollar. The increase followed the release of figures showing that house-price inflation jumped to a 13-month high in April, while mortgage lending rose by the largest amount in 2 years in March.

Edited May 5, 2006 by Jeff Ross

[Warwickshire Lad]

'Pressure on rates boosts sterling':

http://www.telegraph.co.uk/money/main.jhtm...5/cnrates05.xml

Also from that article :-

Economists said the numbers were a sign that the recent slowdown in the property market may now have come to an end, partly because of the BoE's decision to cut rates last summer. Mr Jeffrey said: "I think the cut in rates last August now looks to have been a mistaken policy move."

And so says I. And it was a cut that the Governor himself voted against. What a ****-up.

[karhu]

Only about a month ago I was arguing with people who said that the consensus view was that we were going to have an interest rate reduction. Now we get this. Interest rates could go up as early as next month.

Everyone on here has to get real. Inflation has resulted from the historically low IRs that we have seen over the last year or so. Interest rates are going to go higher and faster than anyone realises.

Be very, very careful about taking on a variable rate or interest only mortgage in the current hawkish climate because:

1. Interest rates are going up (nobody know how high, but 7% is not out of the question) and affordability will get veru stretched.

2. House prices are GOING TO FALL. No question.

[FTBagain]

I am really curious about how the MPC vote went yesterday (usually I couldn't careless). If one or two voted for an increase then market expectations will strengthen and an increase will become more likely.

[zag2me]

I personally cant wait for an interest rate increase, but I think it usually takes 6 months to filter through to the housing market. Hopefully it will stop houses increasing in value faster than my savings again.

Edited May 5, 2006 by zag2me

[karhu]

September short Sterling contract at 95.090 today. How low can we go?

We've gone from possible interest rate cut this year to:

Uk interest rates on hold all year, to:

50% chance of 0.25% rise by Sep to:

100% chance of 0.25% rise by Sep to:

Chance of 0.5% rise by Sep. (the week!)

A trend is developing......

[ca-uk]

any chance of a graph to show it at a glance?

[karhu]

any chance of a graph to show it at a glance?

See the steepening of the curve recently. Marked changes in market expectations.

[ca-uk]

Thanks

So a rise was looking more likely in december also, but reversed at the start of the year and has now reversed once more?

I see sep 07 is at 94.760 so what rate would this imply?

[I Told You So]

What with the Independant yesterday and now this maybe all the utter fools that are ploughing into the property market at the moment might grasp the nettle put 2 and 2 together and think 'rising interest rate means lower price's, lets wait'.

Sadly I doubt it.

[Guest Riser]

Thanks

So a rise was looking more likely in december also, but reversed at the start of the year and has now reversed once more?

I see sep 07 is at 94.760 so what rate would this imply?

You subtract the value from 100 to get the interest rate so 94.76 would imply rates at 5.25% for September 07.

I suspect Brown will put off any increase until he has booted Blair out so next month may be a little soon. Of course the penalty for not increasing rates now when they are needed is that they will need to have larger increases later to control inflation although the die is now cast so there is no way they can avoid recession, its pay back time for Browns spending binge.

[ca-uk]

one thing i don't understand though is if brown is able to control IRs so they are not upped while he is chancellor, why would he want things to come crashing down when he is PM?

surely it will still look bad on him?

or does he just want a couple of years as PM so he can make a fortune afterwards in the after dinner speech market? does he not expect labour to win the next election? surely a HPC would need to be averted at all costs for labour?

[padders]

I personally cant wait for an interest rate increase, but I think it usually takes 6 months to filter through to the housing market. Hopefully it will stop houses increasing in value faster than my savings again.

To affect affordability, yes - but remember half the game is expectations. If people think interest rates are going up that just means to them that property is more expensive. They may wonder if there is a muppet who will be prepared to pay even more than they are for their 2 bed flat in 2 years time. Everyone I know who buys a place thinks someone else would buy it of them for more, destroy that expecation and prices tumble.

[DTMark]

one thing i don't understand though is if brown is able to control IRs so they are not upped while he is chancellor, why would he want things to come crashing down when he is PM?

surely it will still look bad on him?

or does he just want a couple of years as PM so he can make a fortune afterwards in the after dinner speech market? does he not expect labour to win the next election? surely a HPC would need to be averted at all costs for labour?

This oversimplifies it massively, but I suspect that some people are naiive enough to believe that the problems were caused by his *departure* from the position of Chancellor, not *because* of his previous tenure.

It isn't ideal, but which ever way you look at it, it's probably better for the pain to come later when he is safely in number 10 than now, which might prevent him becoming PM. Get in power, then deal with the stored up problems when there's no way to avoid them.

[Bear Goggles]

one thing i don't understand though is if brown is able to control IRs so they are not upped while he is chancellor, why would he want things to come crashing down when he is PM?

surely it will still look bad on him?

or does he just want a couple of years as PM so he can make a fortune afterwards in the after dinner speech market? does he not expect labour to win the next election? surely a HPC would need to be averted at all costs for labour?

I think it's a question of "close your eyes and hope it goes away" at the the moment

A sucession of interest rate rises would be a serious vote loser. Look at Australia, (0.25% rise) and you can see the comments on newspaper websites along the lines of "The government are stealing our money".

When the mainstream news reports low interest rates as a good thing and the government runs poster campaigns saying "The lowest mortgage rates for 25 years under Labour" people will not take too kindly to them 'unexpectedly' going up.

[munimula]

Everyone on here has to get real. Inflation has resulted from the historically low IRs that we have seen over the last year or so. Interest rates are going to go higher and faster than anyone realises.

What inflation? As far as I'm aware it's below 2% at the moment. Not saying that I agree with this figure but that's the figure we are being given. Future predictions are anyones guess.

We've had historically low interest rates for 7+ years now, not just the last year.

[karhu]

Thanks

So a rise was looking more likely in december also, but reversed at the start of the year and has now reversed once more?

I see sep 07 is at 94.760 so what rate would this imply?

Yes, ca-uk. You've made the crucial observation. The economy was looking very weak at the end of last year. CPI was settling around 1.9. That was when the news about rate cut came about and voila house prices have a slight rally!! That's what we're seeing now.

But look now. The period of danger (i.e., that of a weak economy and hence interest rate reductions, which is not good for us whatever the press like to say) is over and we've shot through the IRs stay at 4.5% to now start looking to 5%. That will increase as the months go on and we see CPI creeping back up to 2.5% and beyond! Homeowners will start screaming but Merv will get his way and with fickle Nickell gone the hawks will really start to step up the pace. Interest rates will rise but as seen in US with very little effect on slowing down the economy now because we've kept interest rates low till it hurt and growth/inflation is entrenched.

Looking at the future of interest rates and the fact that even the possibility of a 0.25% cut in IR (not delivered) lead to a rally, the market is looking very, very fragile IMO. Two rate rises and repos are going through the roof. BTL purhcases and new house purchases will fall dramatically. Also, yields on BTL are now at a crux and will go over the ende with +0.5% on IRs. Offloading will gather pace and with repos on the rise supply will rise rapidly at a time when demand is falling sharply. You do the math.... There's serious trouble ahead for the housing market in 2006/7.

[munimula]

one thing i don't understand though is if brown is able to control IRs so they are not upped while he is chancellor, why would he want things to come crashing down when he is PM?

It's a good point. If I was Brown I'd step down now and disappear from politics, get a nice job as CEO somewhere. Perhaps he believes his own spin and lies?

[karhu]

What inflation? As far as I'm aware it's below 2% at the moment. Not saying that I agree with this figure but that's the figure we are being given. Future predictions are anyones guess.

We've had historically low interest rates for 7+ years now, not just the last year.

Oh stop it M. You were wrong before, arguing with me about interest rate rises. Backing down on that now?

THE MPC has to look at the TWO YEAR PROJECTION. A 0.1-0.2 change in CPI now will translate into several percent over the two year outlook. As you'll see interest rates will do very little to slow down the oil tanker economy.

[munimula]

That will increase as the months go on and we see CPI creeping back up to 2.5% and beyond!

Why do you think this?

For years now massive increases in input prices just simply aren't passed onto the consumer so we don't see the CPI figures. What is going to cause inflation to creep up and force the BoE to raise rates?

[karhu]

Why do you think this?

For years now massive increases in input prices just simply aren't passed onto the consumer so we don't see the CPI figures. What is going to cause inflation to creep up and force the BoE to raise rates?

You have to look at the data that you're presented with now and stop looking to the past. High oil prices and low interest rates - a disasterous combination as far as inflation is concerned. You'll wish we'd had IRs at 5% right now in a years time and wonder how on earth they could have been as low as 4%!

[munimula]

Oh stop it M. You were wrong before, arguing with me about interest rate rises. Backing down on that now?

THE MPC has to look at the TWO YEAR PROJECTION. A 0.1-0.2 change in CPI now will translate into several percent over the two year outlook. As you'll see interest rates will do very little to slow down the oil tanker economy.

You really should stop stating stuff like you have the last word.

Do you know what projections the BoE are making for inflation 2 years out? Probably not.

Last year when inflation hit 2.4% which took the BoE by surprise they were still predicting inflation 2 years out to be below their 2% target. Convenient yes, very but this is what they were predicting.

A CPI change now will not necessarily translate into several percent over the 2 year outlook - it doesn't work like that.

My question to you is - what is going to cause inflation over the next 2 years to go considerably over the 2% target?

You have to look at the data that you're presented with now and stop looking to the past. High oil prices and low interest rates - a disasterous combination as far as inflation is concerned. You'll wish we'd had IRs at 5% right now in a years time and wonder how on earth they could have been as low as 4%!

We have had low IRs for getting on for many years now. Oil prices last year were almost as high as now and yet inflation is below 2%

I agree - WE SHOULD be seeing higher inflation figures, oil is up from $10 in 1998 to $70 now so yes, definitely we should see higher inflation but my point is we haven't so why do you think this will change now?

The reason I'm pushing you for an answer Karhu is that you sound just like I did 2 years ago - making the same predictions as you are now but I was wrong, the lid was kept on inflation and I believe there are mysterious forces at work doing this that I don't quite understand. This is why I ask you now - why is inflation going to take off now?

Edited May 5, 2006 by munimula

[padders]

My question to you is - what is going to cause inflation over the next 2 years to go considerably over the 2% target?

Producers being forced to pass on their cost increases which until now they have just absorbed.

[Charlie Don't Surf]

Vindication time coming soon. I think if those of us who have been saying interest rates are going up in the face of media comment are prooved right then our peers might start taking what we say about the housing market a little more seriously.

[karhu]

You really should stop stating stuff like you have the last word.

Do you know what projections the BoE are making for inflation 2 years out? Probably not.

Last year when inflation hit 2.4% which took the BoE by surprise they were still predicting inflation 2 years out to be below their 2% target. Convenient yes, very but this is what they were predicting.

A CPI change now will not necessarily translate into several percent over the 2 year outlook - it doesn't work like that.

My question to you is - what is going to cause inflation over the next 2 years to go considerably over the 2% target?

We have had low IRs for getting on for many years now. Oil prices last year were almost as high as now and yet inflation is below 2%

I agree - WE SHOULD be seeing higher inflation figures, oil is up from $10 in 1998 to $70 now so yes, definitely we should see higher inflation but my point is we haven't so why do you think this will change now?

Inflation is traditionally measured as the increase in money supply. We've discussed that ad nausium on here. You'll eventually see it in CPI it's inevitable. Just wait and see. It's like pumping gas into a metal container and expecting it not to explode even though you don't see it expanding.