Uk Rates 'could Remain At 4.5%'

[Jason]

http://news.bbc.co.uk/1/hi/business/5208366.stm

The Bank of England has enough room to manoeuvre to allow interest rates to stay at 4.5%, a forecasting group says.

Rising oil and commodity prices will slow growth, allowing the Bank enough slack in the economy to leave rates on hold, the Ernst & Young Item Club said.

Consumers and the government will also put the brakes on growth as they cut back after years of heavy spending.

The group also expects inflation to slip below government targets of 2% and so negate the need to raise rates.

The Item Club uses the Treasury's own economic model to gauge the UK economy.

http://www.telegraph.co.uk/money/

Britain's economic boom over the past seven years is sputtering out as consumers reach the limits of debt and UK manufacturers face a relentless slide in global market share, according to the latest Item Club report of Ernst & Young.

Professor Peter Spencer, the group's chief economic adviser, said Britain had failed dismally to break into the fast-growing markets of China and developing Asia.

"UK manufacturers seem to be locked into a vicious circle of low profitability, low investment and lack of cost control," he said.

Wow. It's funny how the BBC focus on the 'no need to raise interest rates'.

[grey shark]

Most of us know the BOE will skew and manipulate there figures to suit there own agenda which is not to raise rates , i reckon though that when finally forced to raise rates they will get away with just a quarter point rise with very minimal damage , and they now this thats why there delaying the inevitable for as long as they can , but a half point rise will cause real damage to those fully loaded with debt and mortgages , therefore the economy will suffer and houses will go out of fashion .

Sadly on betfair it is long odds on { hot favourite } that there will be no interest rate rise in August .

Jason , used to see your name a lot on first rung , good to see your still sticking it out and waiting for the inevitable

[john_coller]

The impression I got from the bbc article was that rates are going to rise, but it may not have to be this month.

The title seems a little misleading.

[smiley]

... and I'm sure that if rates do go up in a couple of weeks, in the August round, then the BBC will say 'no more rate rises needed'...

[dnd]

This was at the footnote of the report...

"While most analysts do not expect the Bank to raise rates next month, many believe a rate increase will come sooner rather than later. "

Personally I think the BOE will try and get away with not raising IR - that's a guarenteed disaster - and let inflation continue to rise

They've been letting REAL inflation rise for some time now - why not con the public a bit more to save their skins...

[OzzMosiz]

http://news.bbc.co.uk/1/hi/business/5208366.stm

The Bank of England has enough room to manoeuvre to allow interest rates to stay at 4.5%, a forecasting group says.

Rising oil and commodity prices will slow growth, allowing the Bank enough slack in the economy to leave rates on hold, the Ernst & Young Item Club said.

Why are other countries having to raise then? Why does this not apply for them?

Consumers and the government will also put the brakes on growth as they cut back after years of heavy spending.

Gordon is currently overspending!

The group also expects inflation to slip below government targets of 2% and so negate the need to raise rates.

So rising prices mean lower inflation?

[Converted Lurker]

Hi Jason, hope you're well, my 2p worth, is there anything to stop the BoE/MPC increasing rates by 0.1% a month over 4-5months initially? Yes, from an admin. point of view it would be a headache, but if they are looking for the engineered 'zero drama' option there it is...

[dnd]

I think they are living in fantasy land if they think REAL inflation will fall

People are now used to a certain standard of living thanks to MEW/credit/debt

If the BOE doesn't raise IR (which it won't) then lenders will continue to lend and consumers will continue to buy and inflation will continue to rise

I reckon the inflation will be redefined again to avoid IR rises - when it happens you may as well borrow money at the low rate and spend it on goods before inflation eats away the money ie REAL inflation will outstrip interest rates on debt - the downward spiral to hyperinflation....

Edited July 24, 2006 by dnd

[Converted Lurker]

Most of us know the BOE will skew and manipulate there figures to suit there own agenda which is not to raise rates , i reckon though that when finally forced to raise rates they will get away with just a quarter point rise with very minimal damage , and they now this thats why there delaying the inevitable for as long as they can , but a half point rise will cause real damage to those fully loaded with debt and mortgages , therefore the economy will suffer and houses will go out of fashion .

Sadly on betfair it is long odds on { hot favourite } that there will be no interest rate rise in August .

Jason , used to see your name a lot on first rung , good to see your still sticking it out and waiting for the inevitable

Used to see both of you, forum has lagged a bit on firstrung, never going to capture the imagination of HPC, might pick up, meant for FTBs without the huge inellectual tangents we often 'go off on' here...but that's what makes this place so fascinating. I personally defy anyone not to hold their hands up and say the HPC community has not enriched their knowledge in some ways...

[iLegallyBlonde]

Somebody from EY was talking on 5 live this morning explaining how there was no need to raise interest rates due to the fact that consumers will not be able to continue spending due to high engergy prices. As long as wages don't rise all is well - apparently.

[dnd]

Somebody from EY was talking on 5 live this morning explaining how there was no need to raise interest rates due to the fact that consumers will not be able to continue spending due to high engergy prices. As long as wages don't rise all is well - apparently.

They can still MEW/borrow easily...

[FTBagain]

The problem for the BoE is that secondry inflation is already here. Wages in China and India are rising. That means that the manpower and energy related costs of the goods and services we import are both rising. Sooner or later that will feed into import costs, and according to the ONS earlier this month (I think) import costs of manufactured goods and services are indded rising.

Inflation is already out of the bag, it just has not feed through to the CPI figures fully yet it is just starting. Remember that the Chairman of M&S said recently that retailers will have to start to pass on their increased costs soon.

Two IR rises by the end of the year may not be impossible. By leaving it so late the BoE will be forced from a proactive stance, as they were 18 months ago, to a reactive stance, chasing inflation up all the way.

[Van]

The ITEM club are a laughing stock. Back in 2004 they were forecasting rates to hit 5.5% in 2005. They are probably the best contrarian indicator you can get.

[dnd]

Two IR rises by the end of the year may not be impossible. By leaving it so late the BoE will be forced from a proactive stance, as they were 18 months ago, to a reactive stance, chasing inflation up all the way.

They won't risk it imo - it's a guaranteed disaster if they do

A far less risky strategy is to bury their heads in the sand, let inflation rise, hide it from the public by changing the way inflation is measured (again) and make credit cheap and easy so people can actually live day-to-day through borrowing

GB should be elected by the time the masses realise that their wages are worth nothing....

Edited July 24, 2006 by dnd

[Charlie Don't Surf]

It's funny that we seem to be immune to the inflation that is causing the rest of the World to hike IRs.

I'd have thought we were much more at the mercy of global inflation than nearly any other country as we don't make anything and import loads.

[MarkG]

I'd have thought we were much more at the mercy of global inflation than nearly any other country as we don't make anything and import loads.

Ah, but all that cheap Chinese tat we're importing has been dropping in price for years. Now that's starting to change and suddenly our inflation rate is largely in the hands of the Chinese... if the Chinese start exporting inflation rather than deflation the BoE will be forced to raise rates even though it won't have much impact on inflation until people can no longer afford to borrow money to buy Chinese tat.

If only they'd raised rates years ago, they'd have had some chance of maintaining control. But now it's far too late.

[Casual Observer]

It's funny that we seem to be immune to the inflation that is causing the rest of the World to hike IRs.

I'd have thought we were much more at the mercy of global inflation than nearly any other country as we don't make anything and import loads.

Yes, and RPI is not galloping away at a faster rate than CPI, so I don't think we can blame the inappropriateness of CPI

[Keith.G]

It's funny that we seem to be immune to the inflation that is causing the rest of the World to hike IRs.

I'd have thought we were much more at the mercy of global inflation than nearly any other country as we don't make anything and import loads.

Im wondering if it's because we are more in debt / have borrowed more per capita so may be more sensitive to changes?

[Casual Observer]

If only they'd raised rates years ago, they'd have had some chance of maintaining control. But now it's far too late.

Don't forget that the MPC were raising UK rates between 2003 and 2005 (7 increases?) at atime when others were lowering or holding theirs.

That's good management, and is the reason why rates won't need to rise to the levels that some people are expecting.

[MarkG]

That's good management, and is the reason why rates won't need to rise to the levels that some people are expecting.

Crap. Real rates in the UK have been negative for years... it's not 'good management' to set rates that allow debt to increase by 10% of GDP per year.

[Casual Observer]

Crap. Real rates in the UK have been negative for years... it's not 'good management' to set rates that allow debt to increase by 10% of GDP per year.

You are looking at things 1-dimensionally. You want high IRs so that house prices fall. The MPC take a more rounded view of the economy, thankfully.

[Realistbear]

Listening to Bloomberg this morning and a consensus is building that Gordon will not be raising rates. The US economy is slowing and that will cap Sterling and the Euro due to export considerations. Bernanke is acutely aware of the housing market in the US and the major builders are tanking as consumers back off speculative buying. Any more IR hikes may push the market faster down the abyss than Ben wants so the liklihood of further Fed hikes is much less.

Sterlng is still seen as a good bet due to higher GDP growth than the Eurozone. Provided the stock market holds up the City will keep the rest of the country going. Bloomberg commented on the loss of a manufacturing base in the UK which is seen more of a problem in the long term rather than in the short to medium term. In other words the markets will make hay on sterling assets while the sun is still shining.

No comment on the housing market which may be as a result of the still-accomodative IR which allow for more borrowing and spending in this sector.

The "conundrum" is oil prices which are having no effect on the economy as most manufactures have been forced to absorb higher costs. This was described as a possible wild card as no one seems to know why high oil has thus far been a non-event in most Western Economies. The effect is, of course, to encourage OPEC that the price resistance is still a lng way off. $100bbls is being touted by some economists as the new target range.

Bottom line: all is well on the Western Front and the skirmish in the Mioddle East is a yawn.

[MarkG]

The MPC take a more rounded view of the economy, thankfully.

The BoE have set negative real interest rates for years, created the biggest housing bubble we've ever seen and the biggest credit bubble we've ever seen. When it pops, they're going to go down in history as the biggest bunch of incompetents in government since Labour had to go begging for IMF loans in the 70s.

How can anyone suggest that people borrowing 10% more than we earn is a good thing?!?!?

[Realistbear]

The cycle is at the point where it is more likely that we will see the next move down. Spending and borrowing is coming to a grinding halt, not because of IR, but because people are maxed out on current rates.

The danger to the UK economy now is deflation. Manufacturing is having to shut down because the UK can no longer compete in the world markets. If we are looking for exports to save the day now that borrowing and spending is slowing we could be in some considerable difficulty as our trade balance is reflecting a shrinking ability to bouy the economy. Overvalued sterling is not helping.

IMO, Gordon is not going to raise rates because the economy is about to go into a recessionary cycle--just like the US. This is where the hiterto invisible effects of high oil will come out. House prices will follow the health of the economy and the direction is no longer up.

http://www.thisismoney.co.uk/news/article....e_id=2&ct=5

Rates prediction cheers borrowers

This is Money

24 July 2006

A FORECASTING group gave cheer to borrowers today by claiming there was enough slack in the UK economy to allow the Bank of England to keep interest rates at 4.5%.

The Ernst & Young Item Club's summer forecast contained

lower estimates for UK growth

in the next two years, as rising oil and commodity prices and overseas interest rates acted as a brake.

It also pointed out that heavy spending in recent years by the consumer sector and the Government meant these 'over-borrowed' sectors were no longer able to drive the economy forward, leaving growth dependent upon UK exports.

The Item Club, which uses the Treasury's model of the economy for its forecasts, stuck by hopes for UK growth of 2.5% this year, but

cut the figure for next year by 0.1% to 2.5% and reduced 2008 from 3% to 2.8%.

[Casual Observer]

How can anyone suggest that people borrowing 10% more than we earn is a good thing?!?!?

No idea. Who was it?