Interest Rates 2007-2012

[maricopa]

i know the consensus is that its not IR specifically that will kick the sandcastle over, (and that even just 1% extra would do that anyway), but, interested to see what level you guys think interest rates will be at in

2008

2009

2010

2011

2012

[Flat Bear]

The trend is up (as everyone knows) but global pressures will push rates up even higher (which most people know) and any currency weaknesses will push up rates to unconsidered hieghts (which only some people know)

2008 6% to 7%

2009 7% to 8.5%

2010 8% to 10%

2011 8% to 10%+

2012 Just say a long way above 3.5%

I can not see any way that rates can be kept below 8% even if money supply goes into negative!

If they can keep rates on the lower side it shouldnt cause too many problems at all, but if rates need to go to 10%+ for a prolonged period this could have devastating results for industry.

Read my signature on how much money costs. I was once told money is, and always has been, the most expensive commodity of all.

[I Told You So]

Here we go an educated guess with a strong emphasis on guess.

2008 - Peak somewhere around 6.5% due to ever increasing inflation.

2009 - UK economy very shaky, US even worse, rates start to fall maybe 5.5% by year end

2010/12 - Crystal ball needed

[JumboMills]

i know the consensus is that its not IR specifically that will kick the sandcastle over, (and that even just 1% extra would do that anyway), but, interested to see what level you guys think interest rates will be at in

2008

2009

2010

2011

2012

Forgive me for sounding blunt, but you may as well pick numbers out of a hat. You can go by past trends, but the world economy is linked, and events in other countries can have a significant affect on ours.

[MarkG]

Forgive me for sounding blunt, but you may as well pick numbers out of a hat. You can go by past trends, but the world economy is linked, and events in other countries can have a significant affect on ours.

Basically, our interest rates are now determined by the Chinese.

If they export inflation through increased wages and commodity prices, then by 2010 Britain could have interest rates over 10% with negative economic growth, declining wages and 5+% CPI. Alternatively if a US recession knocks out much of the Chinese economy, then we could see a British recession with low interest rates and a 1% or lower CPI.

[House of Lords]

Hmmm...influences:

Peak oil

Earth quakes

Astroids

Bird flu

Aliens

Nuclear war

Sun exploding

I'll go for 20% 2012 if all those happen, 3% if not

[JumboMills]

Sun exploding

That would be a bit of a bugger.

[maricopa]

i dont see a sun explosion until at least after the olympics myself, but i agree that one could depress the uk market for at least 3-5 years. that could be a prime to buy, right then

[Guest Charlie The Tramp]

In 1970 my first mortgage was 8.5%, the Broker assured me that rates would be falling as they had now peaked. Did you know he said that the last time rates were above 8.5% was in August 1914 and I would say we will be heading down to around 6% which will make your repayments cheaper, or if you wish your repayment period shorter.

The rest is history.

[Fancypants]

In 1970 my first mortgage was 8.5%, the Broker assured me that rates would be falling as they had now peaked. Did you know he said that the last time rates were above 8.5% was in August 1914 and I would say we will be heading down to around 6% which will make your repayments cheaper, or if you wish your repayment period shorter.

The rest is history.

to be fair, you can't expect a mortgage broker to understand the nuances of geopolitics and economics that were to lead to the breakdown of Bretton Woods. Still, they shouldn't be making such promises!

[MarkG]

That would be a bit of a bugger.

Look on the plus side though: there'd be no more worries about 'global warming'.

[Flat Bear]

Basically, our interest rates are now determined by the Chinese.

If they export inflation through increased wages and commodity prices, then by 2010 Britain could have interest rates over 10% with negative economic growth, declining wages and 5+% CPI. Alternatively if a US recession knocks out much of the Chinese economy, then we could see a British recession with low interest rates and a 1% or lower CPI.

I think this can be said to be the crux of the situation. I believe China is growing at a faster rate even than the latest forecast which recently state it is the 2nd biggest economy in the world and likely to be the biggest by 2010. At current rate it probably already is the biggest.

When China, which currently exports massive de-inflation, decides to export inflation this will be passed on with a plus factor, so China will need to raise IRs to around 18%? to actually see any slowdown, how does/will this effect us? and is it possible it could cause de-inflation?

[Jason]

2008 - 6%+

2009 - 6-7%

2010 - 7%

... then stick around 7% ish as we'll be in recession + hpc so won't go higher, but with no option to reduce it as we'll be importing inflation ...

[Backseat Economist]

i know the consensus is that its not IR specifically that will kick the sandcastle over, (and that even just 1% extra would do that anyway), but, interested to see what level you guys think interest rates will be at in

2008

2009

2010

2011

2012

Well, all depends on what the FED do with their rates and we may well have to keep in lockstep with them. Appears they've just started to go into the disinflation phase, so, just a question of whether we follow them, or cut loose and sterling plummets against both the Euro and the Yen.

If they start dropping rates later in the year, then I'd say rates don't actually have much that further to go. If, however, they flush the system with liquidity again then I'm tending to believe that IR's will keep on climbing. I'm still of the opinion that the accumulation of personal debt has to end somewhere and we will reach an inflection point where higher IR's simply prohibit excessive money lending (which of course will show up in the M4 figures). Combine this with an inevitable credit crunch, then stand back and watch the bonfire.

I don't think importing inflation will make any difference to the rates to be honest - it certainly hasn't with us importing deflation in goods and it won't when it goes back up. There is also bound to be a crisis of some sort somewhere along the way - so that will be the excuse to push rates up even further. This is all about the bottom line, and that's credit against debt. Once that debt is cleansed from the system, then we start all over again with entry into the Euro.

What I do know now is that the FED and the BoE will bluff and counter bluff their way through this to everyone until it's far too late.

2008, 6% - 7%

2009, 7% - 8%

2010, 8% - 10%

2011, 10% +

2012, below 10%

GT.

[whiterabbit]

Here we go an educated guess with a strong emphasis on guess.

2008 - Peak somewhere around 6.5% due to ever increasing inflation.

2009 - UK economy very shaky, US even worse, rates start to fall maybe 5.5% by year end

2010/12 - Crystal ball needed

Out of interest why do you think the US will be worse than the UK in 2009? Seems to me the US is already going down and will soon stabalize to affordable levels for housing. Like wise a good chance they will lower idollar nterest rates. Where as the UK is still tightening and housing is still going up.

[Ash4781]

NICE decade over.

Next decade not so NICE.

Better to guess the final cost of the 2012 Olympic games!

Return per gold medal, etc

Mind you gold might be a bit costly in 2012.

Edited May 15, 2007 by Ash4781

[numpty]

Interest rates will rise in the short term - Housing market collapses - interest rates then fall to try and rekindle the housing market rates - to go as low as 3% if not lower.

Any disaster will only add to the woes of the housing market and reinforce the view that interest rates will have to fall

[MarkG]

Any disaster will only add to the woes of the housing market and reinforce the view that interest rates will have to fall

But interest rates won't be able to fall while the Chinese are exporting inflation to us.

The low interest rate period of the last decade has only been possible because the Chinese have been exporting deflation. That's now changing, and the UK is facing a very real prospect of decades-long stagflation combined with minimal wage inflation.

Edited May 15, 2007 by MarkG

[Wol]

But interest rates won't be able to fall while the Chinese are exporting inflation to us.

The low interest rate period of the last decade has only been possible because the Chinese have been exporting deflation. That's now changing, and the UK is facing a very real prospect of decades-long stagflation combined with minimal wage inflation.

I think this is correct. I doubt we'll see any fireworks. We'll see a long drain marked by sudden dips and small recoveries as people lose confidence and react. We won't see 3.5% interest rates while M4 is above 10% and about 20% in the Far East.

[The Three Little Pigs]

One key driver of inflation over the period will be the cost of the war on terror - wars are always inflationary

See how much the US has spent here:

http://costofwar.com/

Of course we do not have the same openness so can not watch it tick up and up:

http://www.iraqanalysis.org/info/226

Edited May 15, 2007 by The Three Little Pigs

[steve99]

Hmmm...influences:

Peak oil

Earth quakes

Astroids

Bird flu

Aliens

Nuclear war

Sun exploding

I'll go for 20% 2012 if all those happen, 3% if not

I would say the other way around, if any of these things happen they will drop like a stone unless the central bank w*nkers have changed their relegion recently. Look where US went, from Bill Clinton leaving office with about 6% to end of 2002 at 1%, bet the yanks cant wait for the next major terrorist attack (or at least invent one) or war to break out (Iran??) so they can have the next inflation party.

[Adam]

i know the consensus is that its not IR specifically that will kick the sandcastle over, (and that even just 1% extra would do that anyway), but, interested to see what level you guys think interest rates will be at in

2008

2009

2010

2011

2012

Who knows?

I think the greatest shock will be when the public realise the MPC can raise rates by 0.25%, 0.5%, 0.75%, 1%, 2%, 5% or even 10%

We are just TOO used to these 0.25% increments.

[talking rot]

Let's start with 2007:

2007 5.75% (Maximum. BoE changes IRs in response to what they believe the CPI will be 2 years in the future, nothing else.)

2008 5.75% declining in 3 decrements to 5% by Nov 08. Why - inflationary effects of higher fuel prices and food will fall out of scope.

2009 Commences 5% and likely to fall in run up to General Election.

2010 Who knows - impending General Election. (Jun 2009).

2011 Too early to say. Depends on who is in power.

2012 Too early to say. Depends on who is in power.

Interest rates will be a factor but no the cause of a House Price Crash.

[Ash4781]

Let's start with 2007:

2007 5.75% (Maximum. BoE changes IRs in response to what they believe the CPI will be 2 years in the future, nothing else.)

2008 5.75% declining in 3 decrements to 5% by Nov 08. Why - inflationary effects of higher fuel prices and food will fall out of scope.

2009 Commences 5% and likely to fall in run up to General Election.

2010 Who knows - impending General Election. (Jun 2009).

2011 Too early to say. Depends on who is in power.

2012 Too early to say. Depends on who is in power.

Interest rates will be a factor but no the cause of a House Price Crash.

Is the only way the BOE can defend the pound is by raising rates ? (after Gordon's gold sales')

[Odin]

2008 6% to 7%

2009 7% to 8.5%

2010 8% to 10%

2011 8% to 10%+

2012 Just say a long way above 3.5%

You think there is going to be a "smooth increase" over the next 3 years. Is there a time in history when the IR has increased smoothly like you expect ?

I think we can all agree that the IR that knocks over the apple cart is nearer 6.5% than 9% and once the apple cart is knocked over everyone runs for the hills and does the only thing they can do put their prices up (inflation) to try to generate more cash. As soon as that happens the IR will sky rockets in a few months (to curb inflation) since it does not matter anymore a recession is written on the wall and the only way out. My reasonsing for tipping point to be nearer 6.5% then 9% is that people are borrowing 175K these days not 40K like in 1989 and gap between wages increase and HPI just got bigger and bigger in that time so the tipping point is lower than ever before.

My only predictions so far have been 6% by the end of the year 2007 (which I made to a friend in December of last year). Also that by Oct it will be clear to all and sundry there is a housing market problem and the direction of all the stats (no matter how you try to look at them) will be south.

Looking into next year I will say that rates will try to hold and the top (the top of the boom period, not the top of the house price period) will try to be drawn out. This all presumes that global confidence in the business/money/stock continues without a meltdown over that time.

As for trying to predict IR beyond 3 years time I think you are on a hiding to nothing with that one.

Edited May 16, 2007 by Odin