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Guest wrongmove

Don't Blame Mpc For Steering Rates Up

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Guest wrongmove

Don't blame MPC for steering rates up, global liquidity is the backseat driver

" So there will be yet higher interest rates in the UK - that we can deduce from the Bank of England minutes yesterday. But don't entirely blame the Bank, or indeed any national monetary authority. The rising pressure from inflation is a global phenomenon and if, as is possible, things get out of hand in the next couple of years, it will require global co-operation to cap it.

Here in the UK the Bank's monetary committee has started to show the concern that some of the rest of us have felt for several months. The fact that some members considered a half-point rise in rates, not just a quarter-point, this month is testimony to that, even if they did, I think, rightly reject that. When late last year I suggested in these columns that rates might go to 6 per cent I did so pretty tentatively. Now that is completely accepted as something close to an evens bet and people are starting to think that they might go higher still.

But if they do, this will be as much the result of pressures from places such as China as they are from British workers and British home-buyers.

The magic expression is global liquidity. There is an unprecedented amount of money washing round the world and it has to try and find a home. Those funds have in part been created by the long period of very low interest rates in the US, Japan and Europe. With loans costing borrowers less than the rate of inflation it is hardly surprising that individuals, corporations, hedge funds and so on should gear themselves up, borrowing money to buy whatever assets they could lay their hands on......."

Also in The Independent

Rates are heading for 6% with little prospect of relief until 2009

" Interest rates look to be heading for 6 per cent after it emerged yesterday that the Bank of England's Monetary Policy Committee considered raising rates by an unprecedented half-point earlier this month.

Minutes of the 9-10 May meeting revealed that the MPC voted 9-0 to lift borrowing costs by a quarter-point to 5.5 per cent, a six-year high.

Although it was the fourth such move since last August, it was the first time the vote had been unanimous, reflecting growing concerns about inflation.

There was also an in-depth discussion about whether rates should be hiked by a hefty half-point.

The MPC has never raised rates by more than a quarter-point in its 10-year history.

The minutes included a thinly veiled warning that rates are set to rise again, possibly as soon as next month. "The committee agreed that, should the economy continue to develop broadly in line with the central expectation, Bank Rate could be raised further as necessary," they said.

Despite the unanimous vote, discussion of whether to raise rates by a half-point revealed three distinct camps. First, those who preferred to wait for more data; second, those who argued that it would be better to move cautiously; and third, those who were concerned that a bigger-than-expected increase would hit growth.

Philip Shaw, chief economist at Investec, said: "The minutes suggest that the proposal of a half-point increase was not a wacky idea put forward by a couple of mavericks, but a policy action which merited serious discussion.".........."

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Guest grumpy-old-man

this got a mention on the news this morning, they were reading the papers out, although I think it was in one of the big papers with long words in it. This means that white van man won't get it until it reaches the express/mail. ;)

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Yep,such external pressure that France can manage 1.2% CPI and we are the highest CPI in the G8.They can't even blame oil anymore,high yes, but YOY negative.

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Yep,such external pressure that France can manage 1.2% CPI and we are the highest CPI in the G8.They can't even blame oil anymore,high yes, but YOY negative.

Food prices up 6% in the UK - something like 2.5% in Europe.

Go figure.

Have Europe got 13% broad money supply growth? - have they hell.

I'm sick of the excuses being made for this bunch of charlatans.

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