Monday, Jul 24, 2006

Interest Rates

BBC News: UK rates 'could remain at 4.5%'

The Bank of England has enough room to manoeuvre to allow interest rates to stay at 4.5%, a forecasting group says.

Rising oil and commodity prices will slow growth, allowing the Bank enough slack in the economy to leave rates on hold, the Ernst & Young Item Club said.

Consumers and the government will also put the brakes on growth as they cut back after years of heavy spending.

The group also expects inflation to slip below government targets of 2% and so negate the need to raise rates.

Posted by jason @ 06:51 AM (2986 views)
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1. Grey Shark said...

The BOE will do whatever is nessersary to skew and manipulate the inflation figures so they don't have to raise rates , and keep doing this for as long as they can , sadly on betfair it is long odds on { hot favourite } that there will be no change in August , a great shame we lost David Walton .

Monday, July 24, 2006 07:36AM Report Comment

2. Killer Whale said...

Great The BoE has house owner interests in mind. At least they will ensure there is no HPC crash. WONDERFUL

Monday, July 24, 2006 08:46AM Report Comment

3. tyrellcorporation said...

This is certainly a new twist on managing the economy! What you do is ignore the data in front of your nose and base any short term decisions on what might happen a year from now...brilliant, rates need never move again because someone 'predicts' thing will weaken in the second half of 2007!!!

What about inflation running at 2.5%, an upward revision on growth for the UK economy, sky-rocketing fuel and utility prices, surging HPI in London and the SE and global IR rises?

....oh that's just a blip - we need more data before we can act!!! Doh!

Monday, July 24, 2006 09:35AM Report Comment

4. inbreda said...

I really don't understand how rising oil prices can be the reason for leaving rates low. Surely rising oil prices - irrelevant of whether they may slow economic growth - will cause inflation. Isn't inflation the main focus of the BoE? Surely they could argue that inflation slows economic growth, so we should keep rates low. In which case, why did we haev low rates when growth was better and inflation low?

This has all the logic of the VI battlecry "House prices set to double now that affordability has improved * "

*caveat - affordability has improved due to prices starting to freefall.

Monday, July 24, 2006 10:14AM Report Comment

5. Othello said...

Two words spring to mind: Chickens and roosting.

Monday, July 24, 2006 11:15AM Report Comment

6. Marcus B said...

Realistically another 1/4 point rise isn't going to restore house prices to their long term average. To get the panic needed to restore prices to average levels, interest rates will need to rise by more than that and look to be going much higher. How might that happen? Because the Bank has followed the advice of groups like the Ernst & Young Item Club and held off raising rates for fear of the impact on (debt fueled) growth. If inflation is a genuine problem and isn't nipped in the bud then a 'behind the curve' Bank of England will eventually be forced (or foreign capital will flee the UK driving sterling rapidly lower and introducing inflation that way) to chase, causing a re-run of the early 1990s.

Monday, July 24, 2006 11:22AM Report Comment

7. Rickyb said...

I wouldn't get too hung up about stagnant interest rates. Historical data shows that while low interest rates may boost prices during the upgoing phase, interest rates cannot prevent a crash from occurring once a downturn has started.

Monday, July 24, 2006 11:31AM Report Comment

8. Sloth said...

We don't have debt fueled growth we have a debt masked recession. Debt is a temporal phenomenon, i.e. it is consumption brought forward in time. The downside is that there is less consumption in the future in order to pay down the debt. When debt builds up, the future is gradually sold, until there is no future left to consume.

That time is now.

Monday, July 24, 2006 11:46AM Report Comment

9. Surfgatinho said...

"....oh that's just a blip - we need more data before we can act!!! Doh!"
Yep, that's the idea. If you go onto their website and look at their projections it looks like the BOE are expecting everything to sort itself out and, yes, we have just been experiencing a World Cup, Summer, high fuel, Middle East related blip for the last 6 months!

Monday, July 24, 2006 12:20PM Report Comment

10. inbreda said...

What's the best way for non-foreign capital to flee the UK? I'm getting nervous myself.

Monday, July 24, 2006 12:38PM Report Comment

11. paul said...

BBC on Friday 21 July:

"This takes the growth rate up to 2.6% and boosts chances that the Bank of England will raise interest rates soon."

BBC on Sunday 23 July:

"While most analysts do not expect the Bank to raise rates next month"

Flippedly-flop. Wah wah wah. "Britain's economy is doing great, but don't raise interest rates, please, because I have a huge mortgage and no journalistic skills."

Monday, July 24, 2006 12:47PM Report Comment

12. harold said...

Inbreda, I switched my saving away from s a while ago, however a devaluation of the has not yet taken place - sob, sob. Retiredbanker put forward a conspiratorial but increasingly plausible theory for the 's continued strength being due to Blair's continued support for Bush and the neo-cons, i.e., pay-back for troops in Iraq and Afghanistan, and perhaps more recently a refusal to condemn Israel for "carpet-bombing" southern Lebanon. In which case the will probably last as long as Blair does.

UT is, by popular consent, the resident expert on interest rates. Any suggestions UT? Have the BBC been tipped-off, or are we seeing the start of a growing VI campaign building towards the August MPC meeting?

Monday, July 24, 2006 01:13PM Report Comment

13. Thesqueeze said...

Okay even I thought the suggestions that the BBC were unbiased in all this laughable, until today. The writer might as well say that houses in his area are much sought after. Particularly his, oh and here is a picture of it....

Monday, July 24, 2006 01:31PM Report Comment

14. waitingfor hpc said...

Is it not tha case that many Western nations face the same problems as the UK. So money anywhere will be at risk from the internal concerns of those countries... unless we all buy oil which of course seems a sure bet!!

Monday, July 24, 2006 01:47PM Report Comment

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