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Realistbear

Telegraph: Bo E Might Just Raise The Rates

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http://www.telegraph.co.uk/money/main.jhtm...01/cnrate01.xml

Bank faces increasing pressure to start raising interest rates

By Edmund Conway, Economics Editor

(Filed: 01/08/2006)

The Bank of England will be hard-pressed not to raise interest rates this week, experts have warned, after its own figures showed that mortgage lending has jumped, while the amount of money in the UK system has hit a 15½-year high..../
However, the Bank's estimate of net lending was lower than forecasts, at £9bn, as households cut back on their credit card borrowing. The amount owed on plastic rose by the smallest amount recorded for 12 years, the Bank said.
Peter Dixon, economist at Commerzbank, said consumers could be replacing unsecured debt with mortgage-backed loans.
The Bank said the annual growth of M4 hit 13.5pc in June - the fastest pace since November 1990 - prompting economists to warn of inflationary consequences.
"Robust money growth and a buoyant housing market are set to underpin strong domestic demand growth for the rest of the year," said Diana Choyleva of Lombard Street Research. "Exports are powering ahead*, fuelled by a recovery of euroland domestic demand. With the UK economy operating slightly above potential, the Bank of England will be right to raise rates."

My bet is still on Gordon saying no but it will be interesting to see how his banker's put words to his policies in the light of all of the above factors which would have caused Ben at the Fed to hike without any hesitation. But then again, Ben already has the top job in his field whereas Gordon................................ :ph34r:

___________________

*Some think exports are no longer powering ahead:

http://www.statistics.gov.uk/cci/nugget.asp?id=199

UK Trade

Deficit widened to £4.4bn in May 2006

The UK’s deficit on trade in goods and services was £4.4 billion in May, £1 billion higher than in April (previously published as £4.0 billion).

The deficit with non-EU countries widened to £3.7 billion from the deficit of £3.4 billion in April. Exports were virtually unchanged while imports rose by £0.3 billion. There was an increase in imports from non-EU countries of oil of £0.5 billion while imports of chemicals fell by £0.2 billion.

Excluding oil and erratic items, the volume of exports fell by a half per cent between April and May and the volume of imports rose by two and a half per cent.

The pressure to hike is GLOBAL:

http://today.reuters.co.uk/investing/finan...AL-WRAPUP-1.XML

GLOBAL ECONOMY-More rate rises seen after strong PMIs, prices

Tue Aug 1, 2006 1:02 PM BST148
By Natalie Harrison
LONDON, Aug 1 (Reuters) - Strong growth and rising costs in the manufacturing sector in the euro zone, Japan and Britain are adding to pressure for central banks to raise interest rates in the months ahead, PMI surveys showed on Tuesday.
Global demand for raw materials pushed input prices to their highest levels in Japan since at least October 2001 -- when the survey was launched there -- and to near two-year highs in the euro zone and 18-month highs in Britain.
The RBS/NTC Eurozone Purchasing Managers Index (PMI) edged lower to 57.4 in July from 6-year highs in June, but stayed well above the 50 line that separates growth from contraction, while the Japanese PMI showed manufacturing growth at a 4-month high.
The surveys are likely to cement views the European Central Bank will accelerate the pace of tightening and raise rates to 3.0 from 2.75 percent on Thursday, and may help reassure the Bank of Japan that deflation is a thing of the past.

IMO, Gordon WILL bend to global pressure as he has no choice. But internal pressure, such as CPI, M4 etc, will not trump his political ambition and the need for him to protect his legacy of having built the greatest never ending debt mountain in living memory.

Edited by Realistbear

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My bet is still on Gordon saying no but it will be interesting to see how his banker's put words to his policies in the light of all of the above factors which would have caused Ben at the Fed to hike without any hesitation. But then again, Ben already has the top job in his field whereas Gordon................................

If they don't increase interest rates when it is broad consensus that they should then the financial industry will lose faith that the BoE is doing it's job and this will hit the pound...which will cause further inflation pressure.

They should recognise this fact and this does put pressure on them to raise the rates. Raise the rates now and protect the pound or don't raise the rates, put it off, the pound will start to fall and inflation will rise further.

This could be the turning point that many of us have been talking about for a long time. The point where the BoE is forced to raise rates due to mounting global pressures, the decision being forced upon them. Once this starts how high the rates go is anybody's guess at this point.

I will be extremely disappointed on thurs if the rates don't go up.

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I really believe that the raft of recent data has pushed them into a corner and they will have to raise rates on Thursday or become the laughing stock of the city.

Come on you BoE pussies don't bottle it now or you face months of ridicule and very poor job prospects when you eventually leave:D

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http://today.reuters.co.uk/investing/finan...RITAIN-BANK.XML

BoE set to hold rates in cliffhanger decision

Tue Aug 1, 2006 2:03 PM BST173

By Ross Finley

LONDON, Aug 1 (Reuters) -
British interest rates will likely remain steady at 4.5 percent this week
, marking a year of unchanged policy, but the chances that the Bank of England will raise them are higher than they have been in a long time.
Following a spate of strong economic reports, seven out of 46 economists polled by Reuters last week expect the Monetary Policy Committee to nudge rates up to 4.75 percent on Thursday, reversing a hotly-debated decision to cut them one year ago.
The remainder predicted no change, especially given the uncertainty about the world economic outlook and a lingering risk that high oil prices will climb even further and cause serious damage to growth.
But after a long stretch of very predictable policy,
inflation is on the rise
and there is growing uncertainty over when the MPC, temporarily reduced to only seven of its usual nine members, will make its next move.

Its going to take more than inflation to raise the rates I am afraid. Gordon's team at the bank are all doves now and the borrowing must continue or the pack of cards collapses.

http://www.ft.com/cms/s/6b9e3d5e-2030-11db...00779e2340.html

FINANCIAL TIMES

As David Hillier of Barclays Capital, who has recently pushed back his expectation of an August rise to later in the year, notes: "Recent MPC minutes and other comments by MPC members show
no urgency to tighten
policy so a move this week is unlikely."
For example, Sir John Gieve, deputy governor for financial stability, recently described steep increases in oil and other
energy prices as having had a "modest" effect on consumer price inflation
and said there were no signs of inflationary pay demands. The lack of groundwork in preparing the markets for a move as early as this week is one reason why Mr Barrie believes the MPC is likely to act later this year.

As far as Gordon and Co. are concerned there is no inflation. It simply is not there as the CPI basket proves. If there is no inflation why should the bank hike rates? You know it makes sense................. <_<

Edited by Realistbear

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You missed theis at the end of the FT report;

"In fact, Kevin Daly of Goldman Sachs expects the MPC to revise down its economic growth forecast, from 2.7 per cent this year and 2.9 per cent in 2007, because sterling has strengthened compared with three months ago - against the MPC's expectation of a depreciation - and the stock market is lower than at the start of May.

Nevertheless, he has brought forward his expectation of a rate rise from November to August because of the importance that the MPC traditionally puts on non-energy GDP growth, as energy output is volatile.

It seems safe to agree with Philip Shaw of Investec that "this week's MPC meeting will be the most hotly debated decision for some time. It is difficult to see how the next projections will show inflation any lower than three months ago so on balance we expect a quarter-point rise this week, with the hope that an earlier-than-expected move negates the need for another tightening [as the market expects]".

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Here's a question: when was the last time UK interest rates were unchanged for 12 months? Isn't it unprecedented, particularly given that for the first time the Chancellor does not directly control rate.

For all the directionless lashing out at GB on HPC, I think it's fair to say that under his management the economy has been quite stable, at least from an interest rates PoV.

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Here's a question: when was the last time UK interest rates were unchanged for 12 months? Isn't it unprecedented, particularly given that for the first time the Chancellor does not directly control rate.

For all the directionless lashing out at GB on HPC, I think it's fair to say that under his management the economy has been quite stable, at least from an interest rates PoV.

IR have been like a little island of quiet and serene peace while all around there is chaos in the form of raging inflation, twin deficits with record borrowing and government debt, out of control private debt with hundreds going bust every day, rising unemployment, hyperinflation in house prices until very recently, a housing crisis with outpriced key workers and FTBs, accelrating "core inflation" is non-discretionary items, declining manufacturing and services sector jobs, cris in retail jobs .................. But interest rates do remain steady-the appearnce of a succesful Miracle Economy and a job well done by Gordon.

Edited by Realistbear

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Here's a question: when was the last time UK interest rates were unchanged for 12 months? Isn't it unprecedented, particularly given that for the first time the Chancellor does not directly control rate.

For all the directionless lashing out at GB on HPC, I think it's fair to say that under his management the economy has been quite stable, at least from an interest rates PoV.

the only reason that the economy has been stable under GB is because he has been hiring public sector workers like mad.

Meanwhile, HSBC has crunched the numbers on Britain’s recent growth record and worked out how much the public sector has contributed. The results are further vindication for those of us who suspect that much of the UK’s supposed excellent performance in recent years is the result of the government’s borrowing and spending spree.

Up until 1998, GDP growth and private sector growth remained roughly in line. But since then, the two have divulged dramatically. HSBC’s numbers show that growth excluding the public sector was typically 0.5 to 1 percentage points less than the headline GDP figure. Last year, growth would have been under 1% without the public sector boost.

That suggests that once public sector spending slows, UK growth will be hit hard

If GB hadn't employed a further 1M+ public sector workers unemployment would be nearer 10% now, not 5%

All that debt he's piling up has got to be paid back at some point - by you and me.

Stable economy...maybe but at the expense of future prosperity

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the only reason that the economy has been stable under GB is because he has been hiring public sector workers like mad.

If GB hadn't employed a further 1M+ public sector workers unemployment would be nearer 10% now, not 5%

All that debt he's piling up has got to be paid back at some point - by you and me.

Stable economy...maybe but at the expense of future prosperity

Your pudding, rather like RB's, although tasty, has rather too much egg.

Increasing public spending through a period of global recession is not a poor strategy per se as long as it hasn't been overdone (which GB may be guilty off) - pay off the debt in the fat times, borrow through lean - hence us being the only western economy that did not go into recession in 2000 / 2001. However, I don't understand how the expansion of the public sector workforce has meant stable interest rates for the last 12 months. Believe me, I loath the thickness of the Guardian's Wednesday job pages as much as the next man (who may well be RB), but I cannot see the link there.

Each of RB's observations could have been made at multiple points over the last 20 years whatever the flavour of government and yet IRs went up and down like a yo-yo. Indeed, taking RB's observations as a given, wouldn't this mean that IRs have been stable despiute these factors rather than bacause of them?

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Your pudding, rather like RB's, although tasty, has rather too much egg.

Increasing public spending through a period of global recession is not a poor strategy per se as long as it hasn't been overdone (which GB may be guilty off) - pay off the debt in the fat times, borrow through lean - hence us being the only western economy that did not go into recession in 2000 / 2001. However, I don't understand how the expansion of the public sector workforce has meant stable interest rates for the last 12 months. Believe me, I loath the thickness of the Guardian's Wednesday job pages as much as the next man (who may well be RB), but I cannot see the link there.

Each of RB's observations could have been made at multiple points over the last 20 years whatever the flavour of government and yet IRs went up and down like a yo-yo. Indeed, taking RB's observations as a given, wouldn't this mean that IRs have been stable despiute these factors rather than bacause of them?

Many blame IR policies both here and in the US as the cause of HPI-MEW and the ensuing problems of debt. The rates here have been too accomodative for too long and have fostered excessive spending by both the public and private sector. Liquidity sourced from accomodative rates overseas (Japan especially) have alllowed the miracle economy to grow. Gordon's financial prowess is no more than his decision to ride on Alan "Big Al" Greenspan's coat tails in policies designed to stall recession by flooding the markets with cheap money. The problem is that Gordon jumped off the tightening train too soon while Al and now Ben have kept going. The US is now correcting but the UK continues on down the same path Al forged but was smart enough to reign in before things got too much out of control. The jury is still out if he and Ben have done enough in time or whether inflation already has an unquenchable foothold.

Thus IR have been stable in the UK for all the wrong reasons when they shold have been adjusted to reign in the runaway inflation and spending train. Something has gotta give and it will and its going to hurt--a lot.

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Many blame IR policies both here and in the US as the cause of HPI-MEW and the ensuing problems of debt. The rates here have been too accomodative for too long and have fostered excessive spending by both the public and private sector. Liquidity sourced from accomodative rates overseas (Japan especially) have alllowed the miracle economy to grow. Gordon's financial prowess is no more than his decision to ride on Alan "Big Al" Greenspan's coat tails in policies designed to stall recession by flooding the markets with cheap money. The problem is that Gordon jumped off the tightening train too soon while Al and now Ben have kept going. The US is now correcting but the UK continues on down the same path Al forged but was smart enough to reign in before things got too much out of control. The jury is still out if he and Ben have done enough in time or whether inflation already has an unquenchable foothold.

Thus IR have been stable in the UK for all the wrong reasons when they shold have been adjusted to reign in the runaway inflation and spending train. Something has gotta give and it will and its going to hurt--a lot.

This is getting a bit economics-y, but I'll add two observations:

1) Our interest rates never went to the stupid levels of US, EU and Japan which I suspect should reduce the need for tightening

2) Unlike the US, we didn't receive the equivalent of 0.5x UK GDP in tax cuts which I suspect should etc, etc.

It's all been pretty steady, otherwise.

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If it is a rise (and I believe they will bottle it and hold on a close split decision) then that must mean their forecasting model is showing further non-core inflation in the next quarter or two. If the decision is hold and we have a close split in votes in the minutes I think we can also assume a possible inflation increase later based on forecasts. Both are bad clearly.

Being practical for a moment, they never raise rates in Dec or Jan do they if they can avoid it, for obvious reasons. They have probably one rate rise opportunity this year prior to Dec to nip this (or try to!) - if they go for August they get in early but may think they have gone too early - but if they wait and miss a trick then they are forced to raise rates nearer Xmas. Tricky. I think they'll hold and if things don;t improve at all on inflation front its a cert rise for Sept.

Edited by Tempest

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Zero chance of any rises this year, the only direction IRs will head is down.

HSBC were forecast 5.00% by the end of the 2006 though they know the the ecomony will slow.

I'm still looking at H2 2007 for a recession in the UK

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Increasing public spending through a period of global recession is not a poor strategy per se as long as it hasn't been overdone (which GB may be guilty off) - pay off the debt in the fat times, borrow through lean

Keynsian economics may make sense in a world where everyone is an angel, but unfortunately we don't live in one.

As usual, British people have been doing the opposite: borrowing money in fat times, and going bankrupt in the lean. And the government have been loading up on extra employees with more liabilities which will either lead to big layoffs, tax increases or borrowing increases in lean times.

Increasing government spending from a saved surplus in a recession may not be a such bad idea. But increasing government spending when you're already in a deficit and either have to raise taxes -- devastating an already weak economy -- or increase borrowing is crazy. That's the easiest way to turn a recession into a depression.

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Guest Alright Jack

Government debt is what sets the interest rates. Period. The inflation talk is nonsense.

The government borrow as much money as they need by selling bonds to people, institutions and other central banks. As the debt gets large in comparison to their tax take (i.e their credit worthiness declines) investors buy less and less bonds. This results in a cash flow problem for the government that must pay its current debt obligations and fund itself and its servants. Less demand for the currency obviously makes it less valuable hence prices go up to reflect this (then the government has the ******* cheek to tell us that inflation is showing up for some magical unfathomable reason! Often they try to blame someone else like oil companies for hiking their prices) and tell us that they have to raise interest rates. They raise the rates to such a level as to increase bond purchases and increasing demand for the currency again. Then inflation magically goes away, but leaves people with a lot less money in their pocket because of the higher interest rates on all the debt they have been encouraged to take on.

That's how the inflation tax cycle works. WHAT A SCAM!

Now, it's one thing for individual citizens and companies to bankrupt themselves but it is quite another when the government does it. The creditworthiness falls to such an extent that it cannot raise rates enough to attract investment (there is a limit before interest rate hikes destroys the underlying economy which is required to service the debt in the first place) and so the government must cut its cloth (never happens), default (very rarely happens) or monetize the debt (i.e central bank buys the bonds back - hence the pretence that the central bank is a private institution out for a profit and all that to disguise that it is just the governments printing press and propaganda machine)

If the government is lucky and still reasonably credible it can navigate the turbulent sea of iterest rates and monetization and come out of the other side of the recession without creating economic collapse (Like in 1990's, we had a balanced stew of high IR's and helicopter money (remember the mortgage bailout benefits and all that???)

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Zero chance of any rises this year, the only direction IRs will head is down.

HSBC were forecast 5.00% by the end of the 2006 though they know the the ecomony will slow.

I'm still looking at H2 2007 for a recession in the UK

Makes sense as the US is just going into a recession--albeit a mild one so far but with all those mortgages re-setting over the coming 6 months their economy could go into a tailspin as housing drives 60% of their GDP. The lag here will be about 6 months so H2 looks highly likely. Barring any wild cars showing up that is--widening ME conflict, oil going beyond $80bbl, crisis of confidence in sterling etc.

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Purely anecdotal, but with all this talk of a rate rise why has my cash ISA provider just wrote to tell me they're dropping their rate by 0.25%; are they just crap?

Could be related to the very recent announcement that banks are losing billions due to bad debt. Free banking is supposed to end soon also. The Miracle Economy unwinding.

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Guest Cletus VanDamme

Purely anecdotal, but with all this talk of a rate rise why has my cash ISA provider just wrote to tell me they're dropping their rate by 0.25%; are they just crap?

Mine did too, although they did so a few months ago. But they must have been losing money on a cash product that was paying 0.25% above BoE. The drop just brings it down to parity now.

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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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