Will Boe Really Really Keep Lowering?

[Laura]

but something tells me that surrealism is now here to stay

I wake up thinking about the insanity of it.

Just tell me that next month rates will go up

& then up & up.

I can deal with that, it's logical.

[pootle]

Just tell me that next month rates will go up

& then up & up.

Rates will go up next month and then up and up ... does that make you feel better?

Seriously though, that way lies madness! Robert Mugabe for Chancellor!

Ha! Maybe that's why Broon isn't going to the summit in Portugal ...

Mugabe: Ah Mr Brown, I see you have finally recognised the economic wisdom of the Great Nation of Zimbabwe

Brown: Eh, can you stand on my other side please, I can't see you properly ... and what are you taking about

[Mugabe fails to move as requested, but instead starts to make funny faces and sticks his tongue out]

Mugabe: Well it is clear that you have decided to use the power of inflation to wash all you debt problems away, it has worked very well for us. We even managed to bankrupt our opposition! Never again will they be able to challenge us in elections, I am President for life!

[broon: scratches head and then smiles slightly]

Broon: what are you doing after the final session today? can I invite you to dinner?

[lets get it right]

but something tells me that surrealism is now here to stay

I wake up thinking about the insanity of it.

Just tell me that next month rates will go up

& then up & up.

I can deal with that, it's logical.

Sorry, they won't. I'm not saying it's right. I'm saying it is what will happen.

Economy slows. Cut rates to stimulate consumer spending.

Economy slows. Cut rates to stimulate consumer spending.

Economy slows. Cut rates to stimulate consumer spending.

Economy slows. Cut rates to stimulate consumer spending.

They don't know what else to do. They hope it will keep the ship afloat until the next election. That is all they think about. They do not care about you or anyone else. They only care about hanging on to power. It drives their every thought and action. They claim to have gone into politics to 'serve the British people'. If someone could sit them down and categorically prove the country would be better run by someone else, they would still cling to power because it is all that consumes them.

On the other hand, if they raised interest rates now I think we'd be in a severe recession in 3 to 6 months. So, much as I want house prices to fall, I don't want a recession. I've already had to retrain once. Getting to old to do it again.

[FLASH_2007]

Sorry, they won't. I'm not saying it's right. I'm saying it is what will happen.

Economy slows. Cut rates to stimulate consumer spending.

Economy slows. Cut rates to stimulate consumer spending.

Economy slows. Cut rates to stimulate consumer spending.

Economy slows. Cut rates to stimulate consumer spending.

They don't know what else to do. They hope it will keep the ship afloat until the next election. That is all they think about. They do not care about you or anyone else. They only care about hanging on to power. It drives their every thought and action. They claim to have gone into politics to 'serve the British people'. If someone could sit them down and categorically prove the country would be better run by someone else, they would still cling to power because it is all that consumes them.

On the other hand, if they raised interest rates now I think we'd be in a severe recession in 3 to 6 months. So, much as I want house prices to fall, I don't want a recession. I've already had to retrain once. Getting to old to do it again.

I think this is exactly what they will do but all this will do is delay the inevitable recession that is looming buy about a year or so. They may as well raise rates and get it over and done with.

[REP013]

but something tells me that surrealism is now here to stay

I wake up thinking about the insanity of it.

Just tell me that next month rates will go up

& then up & up.

I can deal with that, it's logical.

Who cares, it's a done deal, the crash is on its way.

[Fool's Gold]

If America is not quite yet in recession, why have house prices fallen over there ? Surely in a strong economy house prices wouldn't fall ?

Maybe the housing market is like a car, and I know there's more than one way to crash a car.

[winkie]

Turning Japanese...I feel a song coming.

However low they fall, every little bit helps, but it will only help a little bit.

[bugged bunny]

What's so unusual about IRs being lowered when a housing crash/recession starts?

[crash2006]

What's so unusual about IRs being lowered when a housing crash/recession starts?

The point is they were saying for the past year that the economy is in good shape. however whats going to be damaging is wages if wages dont rise then the whole credit/debit scam will fall apart.

They are tell us the british public dont have the skills however its upto companies to train individuals, western governments arnt for the people who cares if prices are to high as long as people can pay for it then its fine.

[bugged bunny]

The point is they were saying for the past year that the economy is in good shape. however whats going to be damaging is wages if wages dont rise then the whole credit/debit scam will fall apart.

They are tell us the british public dont have the skills however its upto companies to train individuals, western governments arnt for the people who cares if prices are to high as long as people can pay for it then its fine.

I agree that it was a crock of sh1t saying that the economy is in good shape.

I think wages will begin to rise faster. This will be paid for by redundancies and early retirements, cutting fringe benefits (e.g. health insurance and pension deals), improving efficiency, replacing people by machines/computers.

I expect the service sector to be decimated and hundreds of thousands, if not millions, of immigrants in low paid jobs to return to their homelands.

The smarter companies will invest more in training their staff - there'll be more incentive to because in a recession it'll become harder for employees to jump ship once they've been trained up.

[Wad]

but something tells me that surrealism is now here to stay

I wake up thinking about the insanity of it.

Just tell me that next month rates will go up

& then up & up.

I can deal with that, it's logical.

Well the Capital Market appears to have disregarded the Base Rate cut as 3 month Libor stood at 6.5% - 6.6% yesterday. In other words, banks continued to refuse to lend to each other except at a 1% premium over Base Rate. Indeed, Libor did not fall at all over the course of this week as far as I can see.

The BoE cannot continue ignorng the Capital Market. If they do they will stoke up inflation and Sterling will collapse. I think they are stuck between a Northern Rock (housing market collapse) and a hard target (CPI). This is exactly where I have feared we would be - the BoE unable to act deciseively to either support the economy or kill inflation.

I have not been able to make up my mind whether we would get deflation or inflation - I was wrong on both counts looks like STAGFLATION. The worst of all worlds.

[winkie]

The point is they were saying for the past year that the economy is in good shape. however whats going to be damaging is wages if wages dont rise then the whole credit/debit scam will fall apart.

They are tell us the british public dont have the skills however its upto companies to train individuals, western governments arnt for the people who cares if prices are to high as long as people can pay for it then its fine.

Absolutley, companies need to invest more in training their people, and value the people they have.

[bobthe~]

Well the Capital Market appears to have disregarded the Base Rate cut as 3 month Libor stood at 6.5% - 6.6% yesterday. In other words, banks continued to refuse to lend to each other except at a 1% premium over Base Rate. Indeed, Libor did not fall at all over the course of this week as far as I can see.

The BoE cannot continue ignorng the Capital Market. If they do they will stoke up inflation and Sterling will collapse. I think they are stuck between a Northern Rock (housing market collapse) and a hard target (CPI). This is exactly where I have feared we would be - the BoE unable to act deciseively to either support the economy or kill inflation.

I have not been able to make up my mind whether we would get deflation or inflation - I was wrong on both counts looks like STAGFLATION. The worst of all worlds.

But if the BoE no longer has control of IRs, and real IRs stay high, does that not do the BoE's inflation job for it?

[Bloo Loo]

But if the BoE no longer has control of IRs, and real IRs stay high, does that not do the BoE's inflation job for it?

so why the cut at all?

[winkie]

so why the cut at all?

So we can all live happily ever after...but that is just a fairy story, life is real

[OnlyMe]

But if the BoE no longer has control of IRs, and real IRs stay high, does that not do the BoE's inflation job for it?

Only in so much as the local money supply isn't pumped up so much - M4 well above 10% still.

The lowering of M4 howver will not be such a prop as import costs rise if the £ slumps against world currencies and maybe even the $ now.

There are multiple factors at work regarding inflation, besides inflation is going up worldwide and that backdrop is not likely to change unless the whole world demands less raw materials, food, energy etc or new sources are found PDQ.

Edited December 8, 2007 by OnlyMe

[Sinking Feeling]

In answer to your question, yes it is likely the BoE will keep lowering. I thought they would have to be insane to lower this month when food went up over 4% last month alone, petrol is flying up and there are strong indications that we will see Chinese prices rising in 2008. What the BoE has indicated to everyone is that they don't care about inflation, they just want to encourage growth - the likes of Tesco will quite happily take advantage of this situation by raising its prices even higher.

The other problem is that the BoE now looks utterly impotent as LIBOR has failed to fall as expected and I will place money on it continuing to rise from here!

I will reiterate my predictions from early this year of a 3 way squeeze in 2008 - that general interest rates will rise regardless of base rates, that inflation will be stratospheric, but wages will barely rise and there will be more tax rises next year (probably the easiest one to predict).

[Laura]

What's so unusual about IRs being lowered when a housing crash/recession starts?

I don't see the relevance of a housing crash other than to those involved.......& it's not a crash, it's a much needed correction.

But somehow, some amoral little **** has decided that I should (I loathe that word) now be involved.

It's the LCD factor once more. As long as the totally thick & greedy are pacified, fine; let's betray the rest by killing the currency & return to 70s style raging inflation.

Odd thing about the 70s, I remember the 3 day week, but not the inflation.

I think I've answered my own question & I don't like it one bit.

So the committee is more weak than corrupt?

[Willy Weasel]

Inflation is determined by the world economy now. We still have the highest IRs in the G7 so it's not as if the MPC is being accommodative compared to the FED or ECB

[injustice]

I don't see the relevance of a housing crash other than to those involved.......& it's not a crash, it's a much needed correction.

But somehow, some amoral little **** has decided that I should (I loathe that word) now be involved.

It's the LCD factor once more. As long as the totally thick & greedy are pacified, fine; let's betray the rest by killing the currency & return to 70s style raging inflation.

Odd thing about the 70s, I remember the 3 day week, but not the inflation.

I think I've answered my own question & I don't like it one bit.

So the committee is more weak than corrupt?

An interesting thing about inflation, in the seventies people became used to 10% + pay rises, and actually felt better off each year.

[council dweller]

Turning Japanese...I feel a song coming.

However low they fall, every little bit helps, but it will only help a little bit.

..'no sex, no drugs, no wine , no women'........hang on a minute, that doesn't sound right.

I can't remember what Japanese base rates were in 1990 but I guess around 5%.(you could get 7% from the P.O. fixed for 10 years !)Base rates were gradually cut to 0% but you could still get around 0.2% on a bank deposit account as of 3 years ago. Mortgage rates have been around 1.6 to 2% since the mid to late 90's.

One of the big differences between Japan and the U.K. is that they are major creditors whereas we're major debtors.They borrow money from themselves, we borrow from them and others. Who will lend to the U.K's post bubble economy at say 3% ? The base rate may be cut to 3% or even lower but 'real' rates will have to reflect the true fundamentals...an economy based on hpi (hpd!?) and..err..shopping. I'm talking double figures here. 10 to 15%! Or am I being too optimistic?

[Goldmember]

Doesn't much matter. "Market fears Bank of England has lost control of rates", suggests the Daily Telegraph. When Merv cut rates this Thursday, the money market failed to respond and instead raised them.

As the Mogambo Guru says, "we're all freakin' doomed!"

[OnlyMe]

Inflation is determined by the world economy now. We still have the highest IRs in the G7 so it's not as if the MPC is being accommodative compared to the FED or ECB

It is a reflection of how badly interest rate policy has been run in the recent past and how structurally senstive the economy is to inflation the economy is as a result. CPI targeting as wholly ignored one of the biggest costs around - that of land, raise that and you raise the cost of production of EVERYTHING either directly or indirectly bia passthrough via wage demands.

Millions of people are overstretched (either via mortagges, rent, tax, general cost of living) and need wage rises or extra income to maintian living standards. Companies too need more income to offset costs. HPI has infiltrated the economy and raised all costs.

[Wad]

so why the cut at all?

The reason I heard often said by various commentators this week was to 'restore confidence' - well there was me thinking that interest rate policy and the MPC were all about controlling inflation. I fear the MPC may now be in the position of neither being able to restore confiodence or control inflation. It will be down to what the market decides is required to restore equlibrium.

[bugged bunny]

I don't see the relevance of a housing crash other than to those involved.......& it's not a crash, it's a much needed correction.

But somehow, some amoral little **** has decided that I should (I loathe that word) now be involved.

It's the LCD factor once more. As long as the totally thick & greedy are pacified, fine; let's betray the rest by killing the currency & return to 70s style raging inflation.

Odd thing about the 70s, I remember the 3 day week, but not the inflation.

I think I've answered my own question & I don't like it one bit.

So the committee is more weak than corrupt?

Call it what you like.

Interest rates fell during the last HPC in this country - that's why I asked the question.

I'd love to have my debts inflated away like my parents did during the 70s. And I'm sure that a lot of other hard-working people with mortgages feel the same way. It's not only the thick and greedy who'd benefit.