Rate Rises Not Over

[brainclamp]

Bank chief says 'normal' rates higher

http://business.scotsman.com/economy.cfm?id=1000762004

BANK of England chief economist Charlie Bean said that "normal" UK interest rates might be a little higher than the current 4.75 per cent.

"We are now back in the sort of territory that you might think of as a more normal level. It might be a bit higher than we are," said Mr Bean, a member of the bank’s rate-setting Monetary Policy Committee.

However, he said rate rises might be more restrained than in the past. "It is certainly possible that we may need to raise rates less to cool demand than was the case in the past."

Mr Bean’s remarks generally backed the market view that rates will probably have to rise again but are near their peak. The BoE has raised base UK rates five times since November, to 4.75 per cent.

Mr Bean also said that high oil prices, which climbed above $49 a barrel last week but have now fallen to $45, were more an "irritant" than a threat.

"We’d be reasonably relaxed at current levels. In real terms the price of oil is about half what it was in the peaks in 1974/5 and the late seventies," Mr Bean said.

He said oil prices would be a serious issue only if they reached between $80 and $90 a barrel, but thought that scenario was unlikely.

[brainclamp]

Bank chief hints at 5% peak on rates

Thu 12 Aug 2004

JAMES DOW ECONOMICS CORRESPONDENT

http://business.scotsman.com/topics.cfm?tid=125&id=927462004

INTEREST rates may only have to rise by a further quarter percentage point, the governor of the Bank of England suggested yesterday.

Mervyn King, who has overseen five increases in the cost of borrowing since last November, said he has reassessed his outlook for the UK economy.

He predicted a sharp slowdown in GDP growth in 2005, and said this could keep inflation in check. This in turn should allow the bank to keep its hands off interest rates after one more small increase.

The bank’s base rate is currently 4.75 per cent. It has risen by a total of 1.25 per cent in the past ten months. According to Mr King’s new forecasts, a rate increase of a further quarter percentage point could be enough to keep inflation on track with the bank’s target.

Inflation fell to 1.4 per cent last month, and is expected to accelerate to 2 per cent by 2006. A quarter percentage point rise in rates should keep inflation steady at this level - in line with the bank’s goal.

Tom Vosa, the chief economist at Clydesdale Bank, said there was a danger that rates may yet have to rise by half a percentage point, to keep a lid on inflation. Mr King admitted there were large uncertainties surrounding his forecasts, such as the fate of the housing market.

But he downplayed the threat to inflation and interest rates of the soaring oil price, which has reached record highs of nearly $45 per barrel in the past week.

Although house prices continue to surge and consumers are accumulating fresh debt at an unprecedented pace, Mr King stressed there had been tentative signs of a slowdown in the past few months.

He predicted that consumers will rein in their spending as the effect of the five interest-rate increases to date start to bite. He also pointed out that government spending will start to slow next year as the Chancellor comes to grips with his debts. This should slow the growth rate in the economy in 2005.

[Time to raise the rents.]

Look's like good news to me.

[membrane]

what ever data comes out "seems good news to you". prices fall 2% that's aparently good news to you as it supports the slowdown theory. Jesus what make are your blinkers they certainly work well

[Sledgehead]

We've discussed this article under one of DrBubbs house price future's reports. I cited it as the possible reason for a large drop in the property futures, and I'm sure Bean's comment that "rates may not have to rise much further" were seen as, likeTTRTR says, good news for property.

The fact that Bean says rates are now in the "sort of territory that you might think of as a more normal level" is clearly bearish for property. The futures market picked this up on second sight and knocked futures off.

In other words, I think there is something for everyone in Bean's piece. Nothing new there. The words of central bankers and economists are always measured and will never give a totally clear view of what happens next. This is why market timing is not as straightforward as some have indicated it might be.

The reaction of the futures market is typical of all capital markets: it's how some of us scrape a crust.