Jump to content
House Price Crash Forum
munimula

Boe Forecast 2% As Usual

Recommended Posts

http://news.bbc.co.uk/1/hi/business/6660891.stm

In its report, the Bank said that it forecast inflation at 2% in two years' time.

And they've been wrong for at least the last couple of years so don't expect them to start getting it right now.

A year ago with interest rates at 4.5% the BoE predicted inflation now at 2% :lol::lol:

They haven't got a clue what inflation is going to do so everyone out there that's borrowed too much just better be praying that inflation is going to come back down. On recent past performance by the BoE I'd say we've got many more interest rates to come, they are so far behind the curve it's unbelievable.

Share this post


Link to post
Share on other sites
http://news.bbc.co.uk/1/hi/business/6660891.stm

And they've been wrong for at least the last couple of years so don't expect them to start getting it right now.

A year ago with interest rates at 4.5% the BoE predicted inflation now at 2% :lol::lol:

They haven't got a clue what inflation is going to do so everyone out there that's borrowed too much just better be praying that inflation is going to come back down. On recent past performance by the BoE I'd say we've got many more interest rates to come, they are so far behind the curve it's unbelievable.

Maybe they're predicting inflation at 2% cos they know they're gonna keep ramping IR's over the next 2 years until it comes down to there. :-)

Share this post


Link to post
Share on other sites

Yeah but come on this is the Bank of England. They're hardly likely to say "Well, that's it we've totally given up on controlling money supply growth and the inflation figure's a lie. Buy gold before it's too late" now are they? The illusion of competance is vital to any government.

Share this post


Link to post
Share on other sites
Yeah but come on this is the Bank of England. They're hardly likely to say "Well, that's it we've totally given up on controlling money supply growth and the inflation figure's a lie. Buy gold before it's too late" now are they? The illusion of competance is vital to any government.

The point is that the BoE are always predicting inflation to be 2% in two years time. This is the inflation target that they are aiming to hit, they adjust now to hit inflation target in two years time.

Last year when they predicted it would be 2% now that was based on interest rates staying at 4.5%, you need to look at the graphs in their inflation report to see their inflation prediction. 2 years ago with rates at around 3.5% guess what....they were predicting inflation now at 2%

BoE_cpi_projection_may_2005.JPG

It's always 2% based on their current interest rates which basically means that they are reacting reactively rather than proactively. They haven't got a clue what inflation is going to do so they'll wait too late as they have done already and then further rises will be necessary because they left it too late. This BoE is not in control of anything.

I could predict inflation at 2% in 2 years every quarter....and I wouldn't charge anyone for doing it :)

post-852-1179320068_thumb.jpg

Edited by munimula

Share this post


Link to post
Share on other sites
The point is that the BoE are always predicting inflation to be 2% in two years time. This is the inflation target that they are aiming to hit, they adjust now to hit inflation target in two years time.

Last year when they predicted it would be 2% now that was based on interest rates staying at 4.5%, you need to look at the graphs in their inflation report to see their inflation prediction. 2 years ago with rates at around 3.5% guess what....they were predicting inflation now at 2%

BoE_cpi_projection_may_2005.JPG

It's always 2% based on their current interest rates which basically means that they are reacting reactively rather than proactively. They haven't got a clue what inflation is going to do so they'll wait too late as they have done already and then further rises will be necessary because they left it too late. This BoE is not in control of anything.

I could predict inflation at 2% in 2 years every quarter....and I wouldn't charge anyone for doing it :)

The thing I really like about that fanchart is that CPI at 3.1% isn't even within the upper limit of their projections. BTW am I correct in thinking that these fan charts are based on little more than market expectations?

Share this post


Link to post
Share on other sites
That's funny. I'm always told how lucky I was to have high inflation as a homebuyer in the 70's.

But back then lending criteria was stricter so although it was a stretch to buy there was still slack in peoples budgets to absorb higher rates. Now the slack has gone so high inflation will result in high IR's and bang - there goes the house.

Share this post


Link to post
Share on other sites
Guest grumpy-old-man
But back then lending criteria was stricter so although it was a stretch to buy there was still slack in peoples budgets to absorb higher rates. Now the slack has gone so high inflation will result in high IR's and bang - there goes the house.

that it a very important point. I remember it being so much harder to get a bank loan or a mortgage in those days.

When I was buying my first house I remember thinking how lucky I was to be accepted, now you can get a car loan whilst doing your weekly shop, ffs

Share this post


Link to post
Share on other sites
But back then lending criteria was stricter so although it was a stretch to buy there was still slack in peoples budgets to absorb higher rates. Now the slack has gone so high inflation will result in high IR's and bang - there goes the house.

High inflation and static house prices would soon bring slack back.

Just like in the 70's when you borrowed the maximum and had sleepness nights for a year, but then after a few years of double digit inflation, the repayments were suddenly far easier

Share this post


Link to post
Share on other sites
Guest grumpy-old-man
I remember applying for a loan in 1995 and it being refused, I wanted 1K and was earning about 13K.

that's back in the days when a bank manager was exactly that & not a business manager, getting bonuses by the loan. <_<

everytime my wife goes into the bank she is asked does she want a loan. She also gets asked at the post office when she goes to buy stamps :blink:

it won't be long before McLoans are the order of the day, "so that's 2 chicken sandwiches, do you want a loan with that sir?" ;)

Share this post


Link to post
Share on other sites
High inflation and static house prices would soon bring slack back.

Just like in the 70's when you borrowed the maximum and had sleepness nights for a year, but then after a few years of double digit inflation, the repayments were suddenly far easier

The modern buyer relies on a combination of high wage inflation together with low IRs to make the purchase worthwhile in the long run. A highly implausible combination, I'm sure you'll agree.

Share this post


Link to post
Share on other sites
Guest grumpy-old-man
High inflation and static house prices would soon bring slack back.

Just like in the 70's when you borrowed the maximum and had sleepness nights for a year, but then after a few years of double digit inflation, the repayments were suddenly far easier

you argument surely has a simple fatal flaw, why are employers going to give everyone big pay rises, or any type of rise above inflation ?

when we have an oversupply of cheap labour, that just doesn't make sense to me.

I assume you mean double digit wage inflation ?

Share this post


Link to post
Share on other sites
High inflation and static house prices would soon bring slack back.

Just like in the 70's when you borrowed the maximum and had sleepness nights for a year, but then after a few years of double digit inflation, the repayments were suddenly far easier

Wage Inflation: 3.6%.

This is not the seventies.

Share this post


Link to post
Share on other sites
Wage Inflation: 3.6%.

This is not the seventies.

Quite. This is a period of low inflation compared to the seventies. I was responding to the poster who spoke about inflation rising.

BTW, wage settlements are at about 4.5%

Share this post


Link to post
Share on other sites
you argument surely has a simple fatal flaw, why are employers going to give everyone big pay rises, or any type of rise above inflation ? when we have an oversupply of cheap labour, that just doesn't make sense to me.

I assume you mean double digit wage inflation ?

I don't think employers will give everyone big pay rises actually. Which is precisely the reason I don't think inflation will grow too high.

The flaw in your argument is that you don't need wage increases above inflation to erode a fixed debt. You just need wage inflation.

If general prices and wages both rose by 10% per annum for 3 years. today's 200k mortgage would look a lot more sane.

Share this post


Link to post
Share on other sites
Guest grumpy-old-man
I don't think employers will give everyone big pay rises actually. Which is precisely the reason I don't think inflation will grow too high.

The flaw in your argument is that you don't need wage increases above inflation to erode a fixed debt. You just need wage inflation.

If general prices and wages both rose by 10% per annum for 3 years. today's 200k mortgage would look a lot more sane.

that depends on whether you believe the inflation figures doesn't it ? & based on the BoE's run lately, I wouldn't pin too much hope on those figures. ;)

edited to add, who said the debt was fixed ? I don't know many people with a fixed 25 year mortgage, do you ?

Edited by grumpy-old-man

Share this post


Link to post
Share on other sites
that depends on whether you believe the inflation figures doesn't it ? & based on the BoE's run lately, I wouldn't pin too much hope on those figures. ;)

But the inflation figures which you don't believe are the ones that the IRs are targetting. If the CPI is reading 2%, they're not going to increase IRs to 8%, on the grounds that they don't believe in the accuracy of the CPI. :rolleyes:

Share this post


Link to post
Share on other sites
High inflation and static house prices would soon bring slack back.

Just like in the 70's when you borrowed the maximum and had sleepness nights for a year, but then after a few years of double digit inflation, the repayments were suddenly far easier

But the difference now is that higher IR's due to inflation combined with the borrowing multiples we are seeing these days will cause defaults. If people had sleepless nights back then when lending was restricted what do you think it will be like for recent homeowners who are stretched to the limit.

I'm not saying it was easy in previous decades so please look at this from an un-biased point of view.

Share this post


Link to post
Share on other sites
edited to add, who said the debt was fixed ? I don't know many people with a fixed 25 year mortgage, do you ?

:rolleyes: Go away and think about what you've said, GOM.

I said the debt is fixed, not the interest rate. It's the originbal loan that erodes through wage inflation. Borrow 200k and its real value will erode with inflation.

Share this post


Link to post
Share on other sites
I said the debt is fixed, not the interest rate. It's the originbal loan that erodes through wage inflation. Borrow 200k and its real value will erode with inflation.

But that's only if you can keep hold of the property in the crucial part of the mortgage - the first five years.

Share this post


Link to post
Share on other sites
Guest grumpy-old-man
But the inflation figures which you don't believe are the ones that the IRs are targetting. If the CPI is reading 2%, they're not going to increase IRs to 8%, on the grounds that they don't believe in the accuracy of the CPI. :rolleyes:

it's simple at the end of the day.

You choose to believe the RPI/CPI & any inflation related figures, I do not.

Share this post


Link to post
Share on other sites
But the difference now is that higher IR's due to inflation combined with the borrowing multiples we are seeing these days will cause defaults. If people had sleepless nights back then when lending was restricted what do you think it will be like for recent homeowners who are stretched to the limit.

I'm not saying it was easy in previous decades so please look at this from an un-biased point of view.

I don't disagree with you, but don't forget that people who took out high multiple mortgages will see those decrease as their wages increase.

Example, my son borrowed about 4.2 times salary originally, or thereabouts, but with wage rises this is now down to about 3.5ish after 16 months. If inflation (including wage inflation) increased, this process of debt erosion accelerates

Share this post


Link to post
Share on other sites
Guest grumpy-old-man
:rolleyes: Go away and think about what you've said, GOM.

I said the debt is fixed, not the interest rate. It's the originbal loan that erodes through wage inflation. Borrow 200k and its real value will erode with inflation.

so you base all of your arguments on one key area, wage inflation going up. This is probably the worst area to base it on, as it's the area that has the least chance of going up based on our current economic status in the UK imo.

Share this post


Link to post
Share on other sites
it's simple at the end of the day.

You choose to believe the RPI/CPI & any inflation related figures, I do not.

You are really confusing me now!

We're talking about the prospect for IRs and their effect on house prices. It doesn't matter if you or I think true inflation is 50%. The fact is that IRs are 5.5%, wage inflation is 4.5%, and CPI is 2.8%.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 356 The Prime Minister stated that there were three Brexit options available to the UK:

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.