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Waiting Patiently

Why Is David Smith Terrified Of An Interest Rate Rise?

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Guest Bart of Darkness
It is a tough decision. The case for a hike is easy to make. But what about the case for not raising rates? For me, this is based on three things. “Core” inflation, excluding energy, food, alcohol and tobacco, remains low at just 1.2%. Excluding just energy, inflation is 1.4%.

Why stop there? Exclude enough items and you could probably get inflation down to 0.00001%.

Quite how I'm expected to "exclude" energy and food from my personal shopping basket is not covered in the article. Perhaps I should tell my enery supplier that I've excluded their bills from my person "core" inflation index and will therefore no longer be paying them in future.

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I think he is saying there are enough factors already squeezing consumer spending (like bigger utility bills, council taxes etc), so an extra squeeze through IR would be unnecessary.

He also reiterates that energy inflation hasn't crept into core inflation. My memory of the early 70s oil crisis was of energy inflation creeping into everything.

This time around, energy inflation seems to be absorbed in businesses cutting their margins rather than passing on costs to consumers. My feeling is that this has been going on for some time now.

If, as Smith says, we can expect poor high street figures in the near future

Disposable incomes are being squeezed. You wouldn’t know it from the recent retail sales figures, but we soon will.

then either some retailers are going to go bust or they'll have to start raising prices.

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then either some retailers are going to go bust or they'll have to start raising prices.

No. Some companies will go bust and then the others _will_ raise their prices. The only reason companies are swallowing inflationary costs at the moment is because there's enough competition that they can't raise prices... as companies are forced into bankruptcy the competition drops and they can start pushing those costs through.

At which point it will be far too late for the BoE to do anything about it, short of raising interest rates to 10% or more to destroy demand.

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I do disagree with this core inflation measure. What a load of rubbish.

So over the years we've gone from measuring the money supply, to measuring the effect (the rise in prices), to measuring only the rise in the end of the line prices (consumer prices), now we are just measuring the totally discretionary rise in prices (core prices).

I can see the arguments that we are in front of the curve, but to assume that, inflation must be falling since to be on target in a years time. But that's not the case. Underlying prices (commodities) has risen along with the global increase in money supply.

Sorry David, but the arguments you use could always be used. So interest rates need never rise. Face the fact, global interest rates have been far too low. It's just the UK has become addicted to debt.

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"Some even believe that the Bank’s monetary policy committee (MPC) has tarried too long. By keeping base rate at 4.5% while other central banks have been raising their rates"

If they increase rates it's guaranteed disaster, if they don't they we slowly move towards higher and higher inflation as we buy our way out the economic cycle with borrowed money (eg MEW) - ie hyperinflation -

If this is what they intend to do then I see a redefining of 'inflation' on the cards pretty soon - if that happens - then you may as well throw money in the bin....

Edited by dnd

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Meh, l thought the idea of an IR rise WAS to control borrowing vs productivity. l guess its too late, we are too much in debt, so begging the BOE not to raise them is the only option.

At the moment increased squeezes on disposable income is simply causing a greater level of borrowing to fil the income void because its cheap to do so. Join the dots!

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At the moment increased squeezes on disposable income is simply causing a greater level of borrowing to fil the income void because its cheap to do so. Join the dots!

Yep, immigration has supressed wage inflation but borrowing is still easy - I think the idea is that we buy our way out of this economic cycle with debt (like last time)

However, I think inflation is going to get out of hand this time because of global energy inflation - which impacts ALL countries/industries

There is NO WAY the BOE is raising IR - It'll stifle any potential borrowing to help ride this out

We'll be carrying around wheelbarrows full of money (all borrowed) to buy a loaf of bread soon... :lol:

Edited by dnd

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There is NO WAY the BOE is raising IR - It'll stifle any potential borrowing to help ride this out

We'll be carrying around wheelbarrows full of money (all borrowed) to buy a loaf of bread soon... :lol:

Can someone answer if the IR rate is determined solely by the BOE or do the money markets have a big influence?

If you look at the back of the economist the IR for a 2yr government bond is 4.73%.

Is this valuation based on the expectation of a future rise and would fall back to 4.5% if the BOE said it going to keep rates constant for the next 2 years?

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This is the same David Smith who has been confidently predicting that oil would fall back to $30-40 a barrel for the last 20 months or so. The same David Smith who confidently predicted that rates would be slashed repeatedly this year. The same David Smith who forecast a run on sterling. If he thinks rates wil be held I think its safe to assume that they will almost certainly go up , probably in August.

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Can someone answer if the IR rate is determined solely by the BOE or do the money markets have a big influence?

If you look at the back of the economist the IR for a 2yr government bond is 4.73%.

Is this valuation based on the expectation of a future rise and would fall back to 4.5% if the BOE said it going to keep rates constant for the next 2 years?

AFAIK BOE determines it's own rates independently

Have you looked at Bond rates 2 years ago? - do they match current rates?

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I think the BoE MPC is paralysed with fear.

Unfortunately for them, no action is action. Their ars*s are not covered.

No action means persnal debt rising by £100bn + a year at the moment, again.

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This is the same David Smith who has been confidently predicting that oil would fall back to $30-40 a barrel for the last 20 months or so. The same David Smith who confidently predicted that rates would be slashed repeatedly this year. The same David Smith who forecast a run on sterling. If he thinks rates wil be held I think its safe to assume that they will almost certainly go up , probably in August.

Too right bearfacts!

He smugly makes all these predictions and talks down (nu-liarbour style) to anyone who disagrees. His main problem is that he really doesn't grasp the big picture - but he thinks he does...

But as long as the sheeple keep listening to him - he'll keep getting paid :o

Edit: typo!

Edited by Badlad1967

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I thought he was also v close to Nu Lab senior ministers - I always get the feel there is some political undercurrent in his musings (when I can be bothered reading them).

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No action means persnal debt rising by £100bn + a year at the moment, again.

Quite possible, as people are now used to a certain level of spending

They underestimated the housing market (as did the banks) and I think they are going to make the same mistake with consumer debt/spending

Inflation is going to continue to rise and they are going to do nothing (apart from fiddle the inflation figures further)

REAL inflation will outstrip interest on debt and we'll soon have hyperinflation as people spend faster and faster to avoid inflation....

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I thought he was also v close to Nu Lab senior ministers - I always get the feel there is some political undercurrent in his musings (when I can be bothered reading them).

of course - just look who he writes for;

The Times is the official paper of NuLabour, and the Sunday Times is the mothpiece of No 10. Where do you think they get their 'exclusive leaked' stories for the front page from each week?

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Why stop there? Exclude enough items and you could probably get inflation down to 0.00001%.

Quite how I'm expected to "exclude" energy and food from my personal shopping basket is not covered in the article. Perhaps I should tell my enery supplier that I've excluded their bills from my person "core" inflation index and will therefore no longer be paying them in future.

:lol::lol::lol::lol:

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then either some retailers are going to go bust or they'll have to start raising prices.

They are going to start raising prices.

As Stuart Rose of M&S declared recently;

In common with almost every other high street name that has reported in the past year, he justified his caution by listing the spiralling costs that are facing retailers.

“Costs in the business are going up quite considerably – costs of rent, rates, fuel and cost of employees, so businesses are under a bit of stress,” he told reporters.

But unlike his rivals, he suggested that the retail sector may no longer be inclined to keep absorbing rising costs.

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“Costs in the business are going up quite considerably – costs of rent, rates, fuel and cost of employees, so businesses are under a bit of stress,” he told reporters.

But it's alright: inflation is only 2.5%.

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Why stop there? Exclude enough items and you could probably get inflation down to 0.00001%.

Quite how I'm expected to "exclude" energy and food from my personal shopping basket is not covered in the article. Perhaps I should tell my enery supplier that I've excluded their bills from my person "core" inflation index and will therefore no longer be paying them in future.

I love it that

1: housing was removed from the "core indices" is the single biggest purchase anyone makes, has trebled in some areas and cretins like this still claim there is low inflation

2: It gets worse, increasing debt is one of the biggest inflationary pressures (debt burden increase, people have less to spend etc) the biggest single purchase is bought on debt, has itseld trebled (see above)

GDP of the planet is

18,000,000,000

Our debt burden is

1,400,000,000

and this cretin...

Never mind..

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This is the same David Smith who has been confidently predicting that oil would fall back to $30-40 a barrel for the last 20 months or so. The same David Smith who confidently predicted that rates would be slashed repeatedly this year. The same David Smith who forecast a run on sterling. If he thinks rates wil be held I think its safe to assume that they will almost certainly go up , probably in August.

Well we all get things wrong, don't we...

:)

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David hasn't had too much luck of late. His prediction are proving to be rather poor.

Check out this article from last year:

Sunday, August 14, 2005

The oil bubble will burst and interest rates fall

http://www.economicsuk.com/blog/000232.html

I particularly like the quintessential David Smith 'we need a rate cut no matter what' line:

And what if oil prices were to hit $100 a barrel? The Bank would need to cut in those circumstances, too, to prevent an already slow-growing economy sliding into recession. Either way, despite the Bank’s cautious message last week, this month’s rate cut will not be the last.

In regards to interest rates:

Sunday, May 28, 2006

Too early for a calming rate cut

http://www.economicsuk.com/blog/000338.html

As usual whilst everybody else is talking about raising rates, David is more concerned about dropping them. He got suitably slaughtered on his blog.

Does this guy have a hidden agenda? What's with the obsession regarding dropping rates?

:D

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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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