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munimula

Why The Bank Of England Is Feeling Confused

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The turmoil in world markets this week shows just how confused investors are about the direction the global economy is taking.

On the one hand, global growth seems strong, and the subsequent inflationary pressures call out for higher interest rates.

But on the other hand, over-indebted consumers, particularly in the UK and US, look very vulnerable to higher rates. One hike too far and growth could slow dramatically.

And it's precisely this threat that has investors spooked. Yesterday's dramatic plunge in the FTSE 100 and other stock markets was caused by data showing US inflation was stronger than expected in April, suggesting that the Federal Reserve may have to hike rates again at its next meeting.

Confidence wasn't helped by the fact that even the Bank of England can’t make up its mind about which way the economy is heading...

Minutes from this month’s Bank of England interest-rate setting meeting show that the Monetary Policy Committee’s members couldn’t agree on whether to cut interest rates, raise them, or just leave them where they are.

Six members voted for a freeze, one opted for a cut, while yet another went for a hike. It was the first three-way split the Bank has seen for eight years.

The vote for a cut unsurprisingly came from perennial dove Stephen Nickell. It was his last meeting as an MPC member, which suggests the overall tone of meetings could be more hawkish going forward.

But the big surprise was David Walton’s vote for a quarter-point hike. Mr Walton was one of the members who backed the cut to 4.5% last August, voting against Governor Mervyn King. But it seems he is more “activist” than dove, as one analyst put it.

Looking ahead, making decisions isn’t going to get any easier for the Bank. Unemployment continues to rise – it’s now at 5.2%, its highest rate since November 2002. And this month the number of people on unemployment benefit rose 7,700 to 945,500, the 13th increase in 14 months.

The number of manufacturing jobs is at its lowest since records began in 1978, at just 3.06m - and things aren’t going to turn around any time soon. Vauxhall is set to cut 900 jobs from its Ellesmere Port factory in Cheshire.

But at the same time as unemployment is rising, cost inflation is hammering UK-listed companies. Cruise operator Carnival saw its shares continue to sink after warning that profits had been hit by rising oil prices and falling demand.

Hotels group De Vere was another of those complaining about rising costs battering its profit margins. And doorstep lender Provident Financial warned that bad debts among its customers were rising as utility bills increased.

But supermarket group Sainsbury’s troubles attracted the most headlines. The company’s results for the year to March 25th came in above analysts’ expectations. Even so shares fell 5% to 329.5p.

Why? Because that might be as good as it gets. The group’s utility bills are set to rocket when its fixed energy contract comes to an end this October. It had expected second-half costs to rise by £40m, but now reckons the figure will be more like £55m, with first-half costs next year rising by a further £20m. And that doesn't take into account rising wage and tax bills.

With the consumer also under pressure from rising costs, supermarkets are finding it tough to push through any price hikes, and Sainsbury’s is no exception.

And yet the shares are rated at around 26 times forecast earnings for 2007, compared to 14 times for Tesco, the market leader.

So it's no surprise that famed value investor Warren Buffett has snapped up a small $330m stake in the supermarket giant.Tesco is of course also suffering from rising energy costs, but as the dominant player in such an important sector, it should be in a far better position to ride out any storms.

Miracle economy - my ar*e!

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These are the men that should know better than anyone else in the Country what to do and what not to do with the three possible interest scenarios, we now have some voting for one of all three, lower, hold and raise, we really are doomed :D

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These are the men that should know better than anyone else in the Country what to do and what not to do with the three possible interest scenarios, we now have some voting for one of all three, lower, hold and raise, we really are doomed :D

I'm happy for them to put it off until it's too late.

Then interest rates will have to go higher and quicker.

Right now I'm predicting IRs will be 6%+ in 2 years time

Just about the time a lot of people come off their 2-3 year fixed rate mortgage deals.

They'll quickly find that they are in NE and therefore unable to get another fixed rate deal, so even if IRs are only 5% they will be paying 6%+ on Standard Variable Rates to their banks.

So many people haven't accounted for rises in interest rates that even the smallest rate rises will break the back of this housing market

The party is over - it's time to tidy up the mess

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Can't believe I missed this bit

But the big surprise was David Walton’s vote for a quarter-point hike. Mr Walton was one of the members who backed the cut to 4.5% last August, voting against Governor Mervyn King. But it seems he is more “activist” than dove, as one analyst put it.

Someone with the strength of their convictions - what a breath of fresh air - must now be an increase by July, with (probably) another by the end of the year.

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Can't believe I missed this bit

Someone with the strength of their convictions - what a breath of fresh air - must now be an increase by July, with (probably) another by the end of the year.

I think the consensus is August at the moment but then in January the expectation was the next move would be a cut. Therefore consensus means nothing and July is quite possible. I think they will use May and June to gently send signals out that rates are going up.

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Right now I'm predicting IRs will be 6%+ in 2 years time

If the government could stay in control then they could actually go down but governments can only tweak the timing via the independent BoE :) and by intervention but longer term governments are not in control and this can be seen all over the world and from history.

We could all draw a straight line over the past few years and plot rates being 6% in a years time but I can see the USD$ melting down and dragging the £Pound with it and our saviour will become the euro, like it or not and Blair wants us in the Euro and he will want to devalue the £pound before entry to keep the UK competitive on exports so maybe he will sit back and let the pound devalue by keeping IR’s lower then they would normally be.

One thing for sure is we have record debt and all the manipulation/spin in the world is not going to make this disappear without a lot of pain first.

£1.00=1.10eu anyone.

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Right now I'm predicting IRs will be 6%+ in 2 years time

Just about the time a lot of people come off their 2-3 year fixed rate mortgage deals.

Bumped into our ex-landlord at weekend. Typical amateur BTL-er. MEWed main house and lost around £50k in last couple of years on disasterous property decisions

Was asked if were still renting. Yes I replied. "Very happy in our new place. Waiting for prices to fall further. They fell 9% in last 3 months. Anyway, interest rates are on the way up"

"Dont say that! Ive just switched to a tracker" - Doh!

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The independent Bank of England is confused because Tony Blair and Gordon Brown have been so busy beating each other up, the forgot to ring the BofE and tell them where to put the interest rates, and what to put in their reports to justify it.

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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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