Uk Cannot Afford More Interest Rate Cuts

[Mikhail Liebenstein]

Looking at the currency markets, Sterling has been dropping like a Stone against the Dollar in which most commodities are priced.

Whilst this might make the UK more competitive, it might help if we actually had some export industry we could use to compete with.

The real consequence of falling Sterling is however import inflation. The price of fuel which has recently been falling (mostly in Dollars) could rise in Sterling terms as could many of the other things we buy.

Time to stick the brakes on the interest rate cuts, perhaps we even need a small quarter point rise. It will make no difference to Mortgages, as right now they are not related to base rates anyway.

[Guest Mr Parry]

Looking at the currency markets, Sterling has been dropping like a Stone against the Dollar in which most commodities are priced.

Whilst this might make the UK more competitive, it might help if we actually had some export industry we could use to compete with.

The real consequence of falling Sterling is however import inflation. The price of fuel which has recently been falling (mostly in Dollars) could rise in Sterling terms as could many of the other things we buy.

Time to stick the brakes on the interest rate cuts, perhaps we even need a small quarter point rise. It will make no difference to Mortgages, as right now they are not related to base rates anyway.

Absolutely correct.

Didn't the banks recently threaten the BoE/GOVT that if base rates were dropped the banks would follow suit with IR rises?

[Mikhail Liebenstein]

Absolutely correct.

Didn't the banks recently threaten the BoE/GOVT that if base rates were dropped the banks would follow suit with IR rises?

That would make sense. The UK Banks might become cheap takeover fodder at their current prices, even more so if Sterling falls through the floor.

[0q0]

Of course.

But they have rewritten the book, because they think it's what the chav public want and the selfish or economically illiterate and inexperienced businesses call for - businesses that only survived because of a flow of cheap money, as they had no real USP. So naturally they howl for the easy and destructive way that they hope for short-term relief.

With an election possibly soon, Nu Libor will almost certainly only cut, to try to save their assez.

[tegan]

If the government [persists in the folly of slashing interest rates it'll have two effects:

- the banks either won't pass the cuts on or will be even more reluctant to lend

- Sterling will collapse even further and the government will find nobody wants their debt anymore.

They should raise interest rates in order to get the poison out of the system, instead they're swallowing a big dose of it.

[Guest Mr Parry]

If the government [persists in the folly of slashing interest rates it'll have two effects:

- the banks either won't pass the cuts on or will be even more reluctant to lend

- Sterling will collapse even further and the government will find nobody wants their debt anymore.

They should raise interest rates in order to get the poison out of the system, instead they're swallowing a big dose of it.

More sublime correctness!!

Dropping IR's will just jack up inflation and will do nothing for overstretched borrowers who are screwed anyway.

[interestrateripoff]

Trouble is the UK can't afford high interest rates either as the defaults will drag the banks and the economy down.

The perfect Catch 22

[expatowner]

BOE and/or Gumment will cut cut cut.

Get used to it.

[Mikhail Liebenstein]

Trouble is the UK can't afford high interest rates either as the defaults will drag the banks and the economy down.

The perfect Catch 22

Better to have to fight the war one one front (slow down and defaults fought with a fiscal boost) than on two (slow down and defaults fought with a fiscal boost plus devaluation and inflation fought with more fiscal boost).

[Guest Mr Parry]

Better to have to fight the war one one front (slow down and defaults fought with a fiscal boost) than on two (slow down and defaults fought with a fiscal boost plus devaluation and inflation fought with more fiscal boost).

Right.

Borrowers are so over indebted, dropping rates will have little effect, even if the banks do cut rates.

What it will do is jack up inflation so those most vulnerable (pensioners + the broke) will starve to death.

[tegan]

From the banks point of view, if the government wants them to lend at 2% in a market where -

- Most people are already overburdened with debt and can't afford anymore at any price

- The main asset people borrow against is falling in price

- Unemployment is on the rise

Well from the banks point of view that's not a very appetising prospect and they'll run a mile. Ironically they'd probably be more confident lending if interest rates were higher but as has been said, its a bit of a catch 22.

[ken_ichikawa]

Bah just jack them to 25% , and get it over with instead of drawing it out , by keeping people right on the line between bankruptcy and being able to pay their mortgages you are just drawing it out longer much longer, the sooner the collaspe happens the sooner people can get back to rebuilding...

that said if £ goes to $1.45 I'm outta here.

[jonewer]

BOE and/or Gumment will cut cut cut.

Get used to it.

Damn right. The BoE dont give a toss about inflation. Never have done.

Inflation is currentley at 260% of its target rate and they CUT BY 0.5%!

How much more evidence is needed before people realise that the MPC is a sham?

[spord]

On the one hand, I have savings that are being eroded in value by Sterling's descent and by inflation. On the other hand, Sterling falling against the dollar is good for the company I work for, since our contracts are mostly American.

Meh.

[Bloo Loo]

The solution to fix the banks problems is for them to trade through the situation, make profits, and payback the taxpayers.

If they cut their profit levels by dropping interest rates, the time required to fix lengthens, so a halving of rates will double (roughly) the time required to fix themselves.

Hence, they wont pass on rate cuts, and the currency will go hang.

[fluffy666]

Looking at the currency markets, Sterling has been dropping like a Stone against the Dollar in which most commodities are priced.

Whilst this might make the UK more competitive, it might help if we actually had some export industry we could use to compete with.

The real consequence of falling Sterling is however import inflation. The price of fuel which has recently been falling (mostly in Dollars) could rise in Sterling terms as could many of the other things we buy.

Time to stick the brakes on the interest rate cuts, perhaps we even need a small quarter point rise. It will make no difference to Mortgages, as right now they are not related to base rates anyway.

Don't understand why we have to defend sterling.

Sterling has been massively overvalued by the presense of London as a offshore tax haven world class financial center. This has progressively crushed UK manifacturing and made us uncompetitive, and encouraged a huge debt runup. We need sterling to fall to approxamately parity with the Euro and perhaps $1.30, and that will create inflation - which will just mean a more realistic pricing of imported goods, and a devaluation of our debt mountain.

Raising interest rates to keep sterling artifically high and inflation down will just crush the remains of the economy, and make the debt mountain even more onerous, leading eventually to devaluation whatever happens.

[Harry Sacks]

If the government [persists in the folly of slashing interest rates it'll have two effects:

- the banks either won't pass the cuts on or will be even more reluctant to lend

- Sterling will collapse even further and the government will find nobody wants their debt anymore.

They should raise interest rates in order to get the poison out of the system, instead they're swallowing a big dose of it.

It's already started. New issues are selling at higher yields than the gov would like.

[kingsgate]

Bah just jack them to 25% , and get it over with instead of drawing it out , by keeping people right on the line between bankruptcy and being able to pay their mortgages you are just drawing it out longer much longer, the sooner the collaspe happens the sooner people can get back to rebuilding...

that said if £ goes to $1.45 I'm outta here.

The thing is, the government need to do what the majority want, and since the majority have big debts, then they want cheaper interest rates.

Also, businesses generally want cheaper interest rates.

This is democracy in action, especially in the run-up to an election.

Most people don't want to go through bankruptcy and then "rebuild" do they?

[tegan]

The thing is, the government need to do what the majority want, and since the majority have big debts, then they want cheaper interest rates.

Also, businesses generally want cheaper interest rates.

This is democracy in action, especially in the run-up to an election.

Most people don't want to go through bankruptcy and then "rebuild" do they?

Cheaper interest rates aren't going to help if a)The availability of credit still isn't there and b)They can't afford to borrow any more money at any price. The best way to get banks to lend again is to raise interest rates so there's actually a decent risk/return ratio, cutting rates really low make it almost certain they're going to lose more money (and thus us lose more money).

[Bloo Loo]

The thing is, the government need to do what the majority want, and since the majority have big debts, then they want cheaper interest rates.

Also, businesses generally want cheaper interest rates.

This is democracy in action, especially in the run-up to an election.

Most people don't want to go through bankruptcy and then "rebuild" do they?

and yet they will spend billions trying to stop a terrorist threat that harms but a few.

[Nationalist]

Can anyone else see the IMF looming on the horizon?

(But don't worry the pound in your pocket will not be affected.)

[redmen9]

Excuse my ignorance on such matters, but if interest rates are slashed and people's savings suffer, what's to stop people investing their money with non-UK banks where they will get more return on their cash?

Surely if people started to do this (not sure where you'd invest and with the recent Iceland fiasco, a lot of people would be scared to do so especially if the Government wouldn't guarantee their savings) the Banks would suffer and they would have to increase the interest rates again to encourage more savings being deposited??

Edited October 22, 2008 by redmen9

[The Colour]

Bank voted 9-0 to cut UK's rates

http://news.bbc.co.uk/1/hi/business/7683661.stm

[thedebtisreal]

Can I ask why we care about sterling falling?

Its been too high and has driven up the cost of buying and hiring within the UK. Letting it fall will be a boost exports and tourism and might make the UK worth investing in.

And we will get much cheaper irs as deflation takes hold.

[sikejsudjek]

This is just the start. Brown printing money like no tomorrow - now comes the start of the pay back. There is no free lunch, and Brown has sold us down the river for decades to come.