Uk Interest Rates

[PhilT]

Is it just me or did it all start to go to sh!t again when base rates were trimmed to 4.5% last August? In the 12 months up to then YOY HPI was falling steadily.

Can a measly quarter point cut really have such an impact on sentiment? What will happen when rates eventually go back up? Questions, questions...

Edited May 10, 2006 by PhilT

[frugalista]

Is it just me or did it all start to go to sh!t again when base rates were trimmed to 4.5% last August? In the 12 months up to then YOY HPI was falling steadily.

Can a measly quarter point cut really have such an impact on sentiment? What will happen when rates eventually go back up? Questions, questions...

Yes, see my other thread on this very issue in the Market Psychology sub-forum:

http://www.housepricecrash.co.uk/forum/ind...topic=29170&hl=

If the last rate cut has such a big impact (and yet only made mortages cheaper by a few quid a month, imagine what effect the next rate rise will have!

frugalista

[PhilT]

Yes, see my other thread on this very issue in the Market Psychology sub-forum:

http://www.housepricecrash.co.uk/forum/ind...topic=29170&hl=

If the last rate cut has such a big impact (and yet only made mortages cheaper by a few quid a month, imagine what effect the next rate rise will have!

frugalista

Thanks. I missed your thread first time.

I'm not sure that a 0.25% rise will have a greater impact on sentiment than the 0.25% cut seems to have had. Perhaps it would if there was a hike and the general expectation that it is the start of a series of hikes (as has been happening in the States). The VI spin machines will surely be playing down any rate rise as much as they can.

Sentiment is such a fickle thing. Maybe rates have to reach the round figure of 5% for it to dawn on the general public that there are risks to taking on as much debt as they have.

[Pablo-silver or lead?]

MPC will have to raise rates .25% in the next 3 to 4 months. They will have to do the same again at the end of this year/early 07. 5% IR's are still historically low but it's the diferrential from the recent low point that counts. IR were lowered too far, for too long after 9/11, this followed by last years mistake of a cut (against the grain of rises) is going to be the ruin of many who bough more debt. There is no reason rates couldnt go to 5.5 or 6 % by end of 07. No one should whinge about this, these are still low rates!

Come on bulls Buy, Buy, Buy Bye Bye Buy to Let, hello to affordable housing to those who have the resources!

Pablo Silver or Lead?

[karhu]

MPC will have to raise rates .25% in the next 3 to 4 months. They will have to do the same again at the end of this year/early 07. 5% IR's are still historically low but it's the diferrential from the recent low point that counts. IR were lowered too far, for too long after 9/11, this followed by last years mistake of a cut (against the grain of rises) is going to be the ruin of many who bough more debt. There is no reason rates couldnt go to 5.5 or 6 % by end of 07. No one should whinge about this, these are still low rates!

Come on bulls Buy, Buy, Buy Bye Bye Buy to Let, hello to affordable housing to those who have the resources!

Pablo Silver or Lead?

On the money, IMO.

[Firangi]

Thanks. I missed your thread first time.

I'm not sure that a 0.25% rise will have a greater impact on sentiment than the 0.25% cut seems to have had. Perhaps it would if there was a hike and the general expectation that it is the start of a series of hikes (as has been happening in the States). The VI spin machines will surely be playing down any rate rise as much as they can.

Sentiment is such a fickle thing. Maybe rates have to reach the round figure of 5% for it to dawn on the general public that there are risks to taking on as much debt as they have.

I personally think that what brought down HPI from 20% to near 0% was not only 4.75% IR but also the fears of further rate rises. What reinflated the housing market was not just a rate cut of 0.25% but also the expectations of further rate cuts and a desperate buying activity. Now since it's dead clear that the rates are going to go up rather than come down this buy now frenzy has come to an end. A lot of sales agreed have been coming back to market in last few weeks. I am expecting a stagnant market until IR goes up to 5%. Things will get interesting only after that.

[Pent Vaer]

IR were lowered too far, for too long after 9/11, this followed by last years mistake of a cut (against the grain of rises) is going to be the ruin of many who bough more debt.

There was a nice graph in moneyweek couple of months ago

showing that very, very often during rate rising series they

are lowered by a point or two too soon and then have to rise much higher in the end to compensate.

Looks like no change there then.

Pent

[karhu]

There was a nice graph in moneyweek couple of months ago

showing that very, very often during rate rising series they

are lowered by a point or two too soon and then have to rise much higher in the end to compensate.

Looks like no change there then.

Pent

Pent, this is very obvious if you think about it. The downside risks, i.e., recession/deflation are a more worrying threat to a central bank than overstimulation when GDP growth and CPI are below the target. Generally speaking if in doubt they will cut. This over cautous approach (which occurs during every economic cycle) leads to a faster and higher tightening cycle than would be needed if we could really predict the future economy.