Thursday, April 10, 2008

Inflation above target but base rate cut anyway

Bank lowers interest rates to 5%

The Bank of England's Monetary Policy Committee (MPC) has cut interest rates to 5% from 5.25% to spur the economy in the face of a global credit crunch. It is the central bank's third cut in interest rates since early December.

Posted by jack c @ 12:01 PM (2429 views)
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30 thoughts on “Inflation above target but base rate cut anyway

  • Is that the sound of mortgage lenders dropping their rates in suit I hear ?

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  • LLoyds said they would this morning

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  • I’m suprised they didn’t bend over to all the bleating from the past week and drop 0.5%.

    It makes no odds to the debt laden now. The point of return has passed.

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  • doomwatch is correct – this hot off the press from Nationwide (deals gone by 5.00pm today)

    Nationwide changes to Mortgage Rates effective 11th April 2008

    We are making the following changes to our mortgage products with effect from 11th April 2008.

    withdrawal of selected fixed rate products
    increase of rates on selected fixed rate products
    change to maximum loan size
    withdrawal of Open Market Home Buy Scheme
    Don’t forget, products can be reserved online through our e trading website or via MTE (Mortgage Trading Exchange) until 5pm 10th April 2008.

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  • The main reason for this is the 2.5% drop in house prices last month……and the public image of GB.

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  • But as was said the other day on the forum – the BOE said house prices weren’t in their remit when they were going up and up so how can they be now? Brown just wants to claw back some of his lost respectability and popularity by averting a crash as most of the electorate think their house increasing in value all the time is a good thing.

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  • The lowering of interest rates can reasonably be expected to result in a lower £ and thus rising inflation. I am glad I did not sell my gold! I wonder if inflation will pick up soon, or in 18 months times?

    Interest rate changes can take 18 months to feed through. I’ll be remember 11 Apr 08 around Aug to Oct 09 when I’ll expect a rise in inflation.

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  • The pound has devalued by around 16% since last August against the Euro, and shows no sign of stopping.

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  • Just taken out a 6.5% ISA with Lloyds this very morning. 1.5% above Base rate with houses falling, nice. Shame about inflation though but clearly that is not important anymore, the BoE don’t seem to think so.

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  • Thank goodness. That’s the end of the fall in house prices then.

    Anyone got any sand for my head

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  • tyrellcorporation says:

    I’ve noticed in a downturn (of sorts) the BoE always points to projected inflation coming down in the medium term and therefore feels it’s not a problem. Hey presto, no need to ever really raise rates as eventually they’ll always come back down again.

    Regarding today’s decision, I reckon most lenders will drop rates as a sop to GB/AD (for savers and borrowers) but in the next few weeks will jack up borrowers rates again when no-ones watching. This loosening of monetary policy will just feed straight into bank balance sheets and won’t see the light of day in the general economy for at least 12 months.

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  • jack – does to me (show signs of stopping) sorry if i sound like a broken record!

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  • japanese uncle says:

    Unless fighting against inflation was raised as the main (at least officially the only) agenda and remit, how could they justify delegating authority for monetary control to the central banks (including BoE), which are in reality nothing more than the cartels of private financiers. They don’t care about inflation simply because their real masters who actually are causing inflation by rigging oil/commodity prices don’t care a sh– about inflation. What we are seeing is a very natural consequence.

    Independence of the MPC/BoE sounds very nice. Then the governor of the BoE must be directly elected by voters.

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  • geed, what’s the name of that isa?

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  • mark wadsworth says:

    Excellent! Low rates = weak £ = inflation = even lower house prices. Further, weak £ = capital gains for people with accounts in foreign currencies (to wit, me!).

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  • bidin'matime says:

    Techieman – my gut feeling is that we are seeing a Euro bubble that will burst before too long – not long ago we were talking down the Euro as doomed to failure, what with disparate nations / economies all trying to keep the same currency. The trouble is, it keeps on going and, like all bubbles, it starts to defy logic. (Maybe time to start ‘europricecrash.co.uk’ web-site..)

    My question is, as a Techie in these matters, can you sum up why you think the Euro is about to fall? (Sorry if you’ve answered this before – feel free to direct me to an earlier post.) Thanks.

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  • bidin yes i have posted before. i think yesterday – dont want to bore everyone, so i will direct – if i can find it!!! Also have actually just posted re this as S2R1 asked the same question, see the post today re gold (surprise!) where s2r1 comments about the 5th wave in the post. I will look for the more detailed post but in the meantime look at this for an explanation of the chart pattern (diagional triangle top) about half way down. http://www.streetauthority.com/terms/technicalanalysis/reversalpatterns3.asp

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  • Traders have already started to short the euro in preparation for at least three cuts in the second half of the year. (source Bloomberg.com)

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  • I think that the banks and estate agents joined the dark side and believed that they were part of the mystical force that would make money forever, on the back of a fiction based credit market. But now the secret is out they are not all powerful, good will prevail in the form of a housing crash backed up by recession and for those that sold 2 rent it will taste better with champagne.

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  • theboltonfury says:

    if it helps I’ve just literally stashed the full amount in at Barclays ISA – also 6.5% (variable)

    someone actually cheered in our office when the rate was cut. Yep you guessed it – up to her eyeballs in BTL and even Commercial Property. She then tried to tell me that IR cuts were needed to stave off inflation before confessing she lived on credit cards, but called this speculating to accumulate

    is it any surprise that she’s so full of terrible investments when that is her understanding of things? Oh and by the way, she is the school’s group accountant…… this country!

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  • Hi Bystander! Yes biddin i had a “chat” with bystander yesterday : http://www.housepricecrash.co.uk/newsblog/2008/04/blog-falling-pound-to-effect-house-prices-12028.php

    I must say i am only looking to hedge – because of the posibility of a spike (although the break of 8000 has been pretty subdued, which i wasnt expecting to be honest) i only look to trade off a retracement when it looks like the top on the dailies is in (that way you have a natural stop in place). Either way its quite high risk and i wouldnt recommend anyone do it. Normally i look for the middle of a move rather than the extremes.

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  • 17. mark wadsworth said… yeh i just made 12% on some AUD this morning.

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  • mark wadsworth says:

    Geed, 12% in one day? My currency spreadsheet is not updated regularly because Excel for Mac is so bloody slow I only do it once a month or so.

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  • I wish!!! No from the date I have had the funds in that currency, roughly 12 months, should have explained properly. Still 12% in 12 months for nada.

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  • waiting for the crash says:

    My bank account in NZ pays 8% and not its not a sterling account. I have not checked but I could be making something on the ex rate as well.

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  • Re : japanese uncle

    There is no conspiracy jacking up the oil prices, they have been going up for years now, many third world nations cannot buy it in fact which kind of indicates a lack of supply, the basic problem is there isn’t enough to go around and too many economic activities are either based on 30 dollars a barrel oil (a lot of aviation) or pyramid schemes (housing) and this “credit crunch” is the result.

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  • my gut feeling is that we are seeing a Euro bubble

    Not necessarily. I can’t see this happening. Most people abroad rent property….it’s only UK people who are obsessed with buying.

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  • Despite all the media hype demanding rate cuts, what is encouraging is that there is now a definite backlash, not just on this site as would be expected, but by those who realise that with mortgage rates NOT coming down, they are seeing no benefit. They realise that their savings rates will be cut while their mortgage rates are not. It has taken a while for a lot of people to wake up, but it is happening.

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