Interest Rates Rise To 4.75%

[jp1]

Wouldnt be surprised if the August inflation figures will 2.8/2.9% - too close for comfort to the letter-writting-to-explain-things-to-Gordon "3%"

BoE will have advance preview, and their hand will have been forced.

Anyway BBC are being quick to get some counter-spin in: Q&A: Why are interest rates rising?

Because Brown is a feckless tw@t who's been printing too much money - no - dont be silly!

The Bank of England has raised interest rates by a quarter percentage point to 4.75%.

It's just the latest in a series of worldwide rate rises, but why are central banks hiking them now?

Who else is raising interest rates?

It's not just the Bank of England that is raising interest rates.

The European Central Bank also raised rates on Thursday to 3%, and earlier in the week Australia raised its rates to 6%.

In the United States, the Federal Reserve has raised rates on 17 consecutive occasions to 5.25%, and it may do so again next week.

And even Japan, which has had near-zero interest rates, saw its central bank make its first increase in rates in six years last month.

Monetary policy makers are worried that renewed economic growth, combined with high oil prices, could bring back inflation.

What is worrying central banks?

A common factor is the effect of high energy prices, which is feeding through the economy to affect everything from transport costs to the price of utility bills.

With trouble in the Middle East pushing oil to over $70 per barrel, expectations that the oil price rise would only be temporary are now being revised.

Inflation in the UK rose to 2.5%, the economic target set by the Treasury.

Central bankers are also worried about asset prices, especially the cost of housing in the US and the UK.

The concern is that low interest rates has encouraged people to purchase more property, both to buy and let, and pushed up prices.

The ratio of house prices to average earnings has reached record highs in these countries.

And there is a concern that people have borrowed too much money, partly against the increased value of their property.

Will interest rates continue to rise?

Central banks want to move cautiously for two reasons.

There are concerns that higher interest rates could choke off economic growth, especially in areas like the eurozone where recovery is just beginning.

And there are concerns that a rapid rise in rates could lead to a big increase in the cost of debt, causing widespread difficulties for individuals who are over-stretched.

But most central banks these days believe that the only way to beat inflation is to tackle inflationary expectations before they get started.

So they want to send a clear signal to individuals and companies that they will act firmly.

And this means that - if inflation continues to rise - they are likely to take action again if they are to maintain their credibility.

Who will be affected most by the rate rise?

Many central bankers have argued that the recent bout of very low interest rates around the world have led people to underestimate risky investments.

The cost of borrowing for weak companies was not much different from the interest rates charged to stronger companies, for example.

They hope that the rise in interest rates will encourage people to re-evaluate such risks, and expect that the cost of borrowing will rise faster for riskier types of investments, whether in companies or countries.

This could hit individuals, companies and countries who have over-borrowed.

UK banks have already made big increases in their provisions for bad debts.

Who will benefit from the rate rises?

The biggest gainers from the rate increase will be savers.

Central banks hope that consumers will be encouraged to save more and spend less, thus helping to rebalance the economy.

This is especially true in the US, where a consumer boom has sucked in imports from around the world and led to a huge balance-of-payments problem.

The rate rises could also help pension funds who depend on bonds rather than stocks for their income - they will be more able to fund future pensions.

It's a good job they moved today. If BoE stayed their hand, the 2 Brown doves will be on board next month, and would have prevented a hike leaving rates at 4.5%. No matter how dovish they are the most they can do is vote for a hold at 4.75%

[Casual Observer]

A lot of flats could be down 50% within the next 2 years. I don't reckon that's long to wait.

No, you should be fine with that.

[delboypass]

I think they read my MOAN topic yesterday and felt some pity for me...

NOW LETS GET ANOTHER RATE RISE IN QUICK!!!!

PS When do you think the banks will increase my savings rate??

[MarkG]

The new generation of homebuyers have far more sophisticated lenders and schemes at their behest now.

Yes, they can borrow absolutely staggering amounts of money that they can't afford to pay back after even a 0.25% increase in rates. I'm sure they'll enjoy their new experience of bankruptcy.

There's nothing to be gained by rejoicing in the suffering that others are going to experience just cos you didn't get on in time to make your gains.

Whereas it's perfectly OK for you to say 'TOUGH SHIT' to people who never had a chance to 'get on in time to make your gains'. Well, I hope people who feel the way you do do suffer... I've rarely seen a claim that selfish on this site before.

[munimula]

I think they read my MOAN topic yesterday and felt some pity for me...

NOW LETS GET ANOTHER RATE RISE IN QUICK!!!!

PS When do you think the banks will increase my savings rate??

Bradford and Bingley already increased their e-saver rate to 4.85%

Generally I think banks will increase rates in the next 1-2 months but not always by 0.25

[?...!]

Interesting responses

http://newsforums.bbc.co.uk/nol/thread.jsp...paginator

[Fancypants]

and so appropriate that the weather should be commensurately gloomy and autumnal today!

my, this schadenfreude is most unbecoming

"singing in the rain, just singing in the rain" <kicks EA/tramp in the stomach>

Edited August 3, 2006 by Fancypants

[Pooh Bear]

Perpetual? I won't be around to see that out! I think I said over the next 5 or so years.

Due to the non-existence of globalisation? You must have dreamt I said that.

Won't your theoretical perpetual wage inflation make repayments more affordable? No as affordable not more.

The question mark at the end of non-existence of gloabalisation was a guess at the thinking behind your 'wage inflation will continue' argument. I'm guessing that only someone who doesn't believe in globalisation could possible think that wage inflation will continue as in the past. The Ignorant Steves of this world are busy importing wage deflation.

Your signature says that houses are affordable. Now you're saying that a mere 0.5% IR rise will make them unaffordable. But you also believe that wage inflation over the next 5 years will keep houses affordable.

[SarahBell]

OOoo! I'm a bit speechless but probably a good job as the cats never listen.

What did the bbc say again this morning? ;-)

http://news.bbc.co.uk/1/hi/business/5242344.stm

It's just the latest in a series of worldwide rate rises, but why are central banks hiking them now?

Who else is raising interest rates?

Nice one.Blame the rest of the planet.

Edited August 3, 2006 by SarahBell

[tenroom]

Whereas it's perfectly OK for you to say 'TOUGH SHIT' to people who never had a chance to 'get on in time to make your gains'. Well, I hope people who feel the way you do do suffer... I've rarely seen a claim that selfish on this site before.

Yeah it IS ok for me to say that because the people who are bitching are doing so because they haven't had a chance to feel smug. They've not had the chance to feel safe in the knowledge their "cleverness" or financial "savvy" has made them stacks of cash. All they've seen is the inexorable rise in property prices and the newspaper supplements publishing feelgood proclamations that it'll never end along with the adverts for stripped floorboard suppiers, Smallbone fittings, stainless steel Smeg refrigderators and Gardenia vinyl matt. That and ONLY that is the reason for the vitriol. It's pure and utter JEALOUSY - nothing less.

Nastiness because they've not participated and benefitted from the spoils, not because they don't own the property that fuels it. You know it as well as I do so save your bogus outrage for a post that warrants it.

[mightytharg]

You will get more bang for your bucks.

Don't you mean less bang for your bucks? More quack for your quids.

[Tempest]

The reaction on the BBC and various other forums and media outlets is EXACTLY what was predicted on HPC a year or two ago. Namely, that one didn't need a return to 7,8,9%+above interest rates to reverse the market provided people's leverage and debt were suffficiently large. You just needed to get to the point where sentiment turns. We are nearing (but not yet at) That point. I believe now that sentiment will kick in in the late autumn and I have a VERY bad feeling about this year's retail sales in the run up to Xmas...

As long as the HPC has not occurred debts have grown so large (and others bills and costs increased so much) that the smallest increase in rates is now met with squeals of pain. In the 70s or 80s a 0.25% hike would not have registered anything with anyone. It took 0.75% or 1% slugs, and several of them, to have any such effect.

I think this will cause a lot of people to pause before buying and lots to defer for a while. It could be the tipping point but lets see what happens in the next couple of months.

[Guest X-QUORK]

Yeah it IS ok for me to say that because the people who are bitching are doing so because they haven't had a chance to feel smug. They've not had the chance to feel safe in the knowledge their "cleverness" or financial "savvy" has made them stacks of cash. All they've seen is the inexorable rise in property prices and the newspaper supplements publishing feelgood proclamations that it'll never end along with the adverts for stripped floorboard suppiers, Smallbone fittings, stainless steel Smeg refrigderators and Gardenia vinyl matt. That and ONLY that is the reason for the vitriol. It's pure and utter JEALOUSY - nothing less.

Nastiness because they've not participated and benefitted from the spoils, not because they don't own the property that fuels it. You know it as well as I do so save your bogus outrage for a post that warrants it.

Whatever....squeal like a piggy!

[munimula]

Nastiness because they've not participated and benefitted from the spoils, not because they don't own the property that fuels it. You know it as well as I do so save your bogus outrage for a post that warrants it.

Probably, because like myself we were unable to participate at the time prices were sensible. Myself and my friends all came out of uni at the time property was starting to go into hyper-hpi mode. When you just come out of uni with debts, low starting salaries and you don't know where you are going to settle as you need flexibility to get your 'career' started the last thing you are thinking of doing is buying a house.

Aren't we b*stards for being born a few years too late.

[no dice]

I don't think that this is the last base rate rise we are going to see. Wage inflation in the UK is currently running at +4.1% PA - the highest rate of the 15 developed economies followed in The Economist. In addition, broad money supply (M4) is increasing at +13.7% PA - again the highest rate of the developed economies tracked by The Economist.

[onrollover]

Yeah it IS ok for me to say that because the people who are bitching are doing so because they haven't had a chance to feel smug. They've not had the chance to feel safe in the knowledge their "cleverness" or financial "savvy" has made them stacks of cash. All they've seen is the inexorable rise in property prices and the newspaper supplements publishing feelgood proclamations that it'll never end along with the adverts for stripped floorboard suppiers, Smallbone fittings, stainless steel Smeg refrigderators and Gardenia vinyl matt. That and ONLY that is the reason for the vitriol. It's pure and utter JEALOUSY - nothing less.

Nastiness because they've not participated and benefitted from the spoils, not because they don't own the property that fuels it. You know it as well as I do so save your bogus outrage for a post that warrants it.

Well like a lot of people on this site. I did not miss the opportunity to buy into houseing and make lots of money. I never HAD the opportunity to buy into housing, without getting a 100% interest only mortgage at a multiple of 8 times my salary.

It is not jealousy every previous generation had to only spend a multiple of about 4 times their salary to get a house and that was with inflation (now we have very little inflation). Add to this the debts that I have from going to university and the useless pension, after 50 years of working with added contributions to my very good pension scheme I will have £13,000 a year to spend. (Not enough to live if I have a mortgage still to pay).

Frankly I have been screwed over by the generation before me.

[munimula]

The reaction on the BBC and various other forums and media outlets is EXACTLY what was predicted on HPC a year or two ago. Namely, that one didn't need a return to 7,8,9%+above interest rates to reverse the market provided people's leverage and debt were suffficiently large. You just needed to get to the point where sentiment turns.

Or the 'tipping' point.

I read recently the aveage debt service cost is approx 20% of take home pay. It is near the levels seen in 1990, the levels that preceded the last recession.

This small interest rate rise has probably tipped us over the edge.

By historical measures we can't afford anymore debt, we can't afford to pay back this much.

0.25 - 1% interest rate rises are all that are needed

[Objective Developer]

I just spent my deposit on champagne and cocaine for everyone!

Hell yes! Let's behave like Columbian party animals! Any excuse really; I have wondered what affect an IR fluctuation will have on the street price of hard drugs.

'A large SNIFF is heard across the open plan office, and OD emerges from under his desk with a numb face, and non stop, gibbering chatter about houses and rates and big crashes slurring from his mouth. All the while his wild eyes are roaming frantically from one terrified face to another, and his hands are shaking like man with the onset of a terrible wasting disease’

IMHO the price will drop as Estate Agents see sales fall through and decide to curb the luxury items for the time being. Next to be hit will be the hair styling product industry, close crops will be the order of the day as the EA’s try and cut living costs.

I can see it now; if you need to spot the EA, don’t look for the young, arrogant chap in the pink tie with a knot like a hippos testy, and instead look for the bald, dishevelled geek who is obviously suffering the effects of going cold turkey from a £50 a night coke habit.

Like everything, the side effects of this rate rise will crop up in the most unusual of places.

OD

EDIT: Having just reread what I have written above I am starting to suspect I may have had a drink spiked with some kind of amphetamine! What is it actually about? Holy god! The VI’s are after me!

Edited August 3, 2006 by Objective Developer

[Mags]

Interesting responses

http://newsforums.bbc.co.uk/nol/thread.jsp...paginator

Blimey! I'm amazed the BBC has published those! Things really are changing very quickly!

Yeah it IS ok for me to say that because the people who are bitching are doing so because they haven't had a chance to feel smug. They've not had the chance to feel safe in the knowledge their "cleverness" or financial "savvy" has made them stacks of cash. All they've seen is the inexorable rise in property prices and the newspaper supplements publishing feelgood proclamations that it'll never end along with the adverts for stripped floorboard suppiers, Smallbone fittings, stainless steel Smeg refrigderators and Gardenia vinyl matt. That and ONLY that is the reason for the vitriol. It's pure and utter JEALOUSY - nothing less.

Nastiness because they've not participated and benefitted from the spoils, not because they don't own the property that fuels it. You know it as well as I do so save your bogus outrage for a post that warrants it.

Believe me, your posts deserve all the outrage they get.

[Warwickshire Lad]

This is excellent news, and I am looking forward to Interest Rates rising further.

It's a whole load of egg on the face of so many commentators and VIs who were all telling us for an entire year (and as late as this morning on the BBC) that the next move would be down.

Bravo!

[Pooh Bear]

stripped floorboard suppiers, Smallbone fittings, stainless steel Smeg refrigderators and Gardenia vinyl matt.

It's not everyone else's fault you bought this tat on credit!

[tenroom]

The point is that lots of graduates and FTBs DID get the dosh together to get on. There will always be folks who don't possess the the means to buy property. Hell, I know lots of them but htey're not being nasty and wishing repossession and financial suffering on those that managed to do so. It doesn't make for good karma to wish ill on others, that's all I'm saying.

My good fortune on the quadrupling of the value of my flat is exactly that. Nothing to do with my being financially astute or being a housing market visionary. I needed somewhere to live so I bought a place - pure and simple. A lot of my friends being of a similar age didn't buy at the same time even though they had the means to. THEY aren't being sh*tty about those that've bought in the last coupla years and profited even though they can't afford to so I find it hard to condone the kind of ill will I've been reading on this thread.

If I wasn't a homeowner now, I doubt I could afford to buy but although I'd welcome the chance to do so now the rates may go up further, I wouldn't wish bad sh*t on others even though I know there's a good chance many private buyers will get repo'ed if they do. If you can't see the sentiment behind that, I don't really give a sh*t.

[Casual Observer]

t. I'm guessing that only someone who doesn't believe in globalisation could possible think that wage inflation will continue as in the past.

Sorry, but I don't think much of your reading - comprehension skills! I didn't say that "wage inflation will continue as in the past" . If you read my post you'll see that I predicted that house price rises would follow the rate of wage inflation.

I'm truly baffled as to how you interpreted it the way you did.

[?...!]

Sorry, but I don't think much of your reading - comprehension skills! I didn't say that "wage inflation will continue as in the past" . If you read my post you'll see that I predicted that house price rises would follow the rate of wage inflation.

I'm truly baffled as to how you interpreted it the way you did.

Thats a sensible prediction, but do you think it fully acknowledges a potential/likely increase in the cost of borrowing?

[Casual Observer]

Thats a sensible prediction, but do you think it fully acknowledges a potential/likely increase in the cost of borrowing?

Well, I factored in my assumptions of IR movements (5% tops in this cycle)

If I'm wrong, and we ever become the high IR, High inflation economy of my youth (1970's) then I don't see any difference. We'd have the kind of high nominal price rises and high wage inflation we had then, not least supported by the benign effects of high wage inflation for mortgagees, that my generation is regularly reminded of on this forum!

Edited August 3, 2006 by Casual Observer