Tuesday, June 10, 2008

Trading frenzy points to interest rate rises

Inflation shock leaves markets fearing three interest rate increases this year

In scenes described by one observer as "carnage", traders embarked on a massive sell-off of UK government bonds, pricing in the likelihood that the Bank's Monetary Policy Committee will lift the official base rate to 5.75pc by the end of the year. The news comes amid growing fears that Britain is facing a new bout of stagflation. The Office for National Statistics reported that factory gate inflation has risen to the highest rate since records began 22 years ago, with the price factories are charging their customers up 8.9pc on last year. Manufacturers' own raw materials costs jumped a record 27.9pc, driven higher by record oil and food prices, the figures showed.

Posted by inthedelhi @ 02:52 AM (671 views)
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4 thoughts on “Trading frenzy points to interest rate rises

  • Oh dear, Ray Boulger and all the others bleating for interest rate cuts – better dust off your pension plans, because there wom’t be much else for you to do. Tee Hee

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  • As many on HPC predicted it looks like the BoE lost it earlier in the year when it dropped interest rates (a little) in an attempt to restart the economy (aka housing market) a la 2005. Wrong medicine and they took the eye of the inflation ball so the cure will now have to be worse than it might have been had they held their nerve. JC Trichet is turning out to be the more competent central banker.

    This looks bad, it will be Gordon Brown’s 1990 moment because although interest rates may be lower than in the last HPC people are stretched to the point where the pips squeak by a devil’s brew of inflation, mortgage repayments and stealth taxes. A small rise in interest rates will have far greater effect than during the last crash.

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  • There’s a good graph in this piece that shows how the BOE kept rates too low a couple of years back, and also suggests that rates above 6% are likely if this is more than a brief spike.

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    I can’t post it again because of the duplicate posting rules, but have another look at Barratt’s share price, which is now in total meltdown, and over 90% down on a year ago.

    – Any guesses as to when the receivers will be called?

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  • Nice one UT

    I would love to believe interest rate rises are on the cards but it just sounds too good to be true, even with inflation out of control. I just can’t see them having the stones to put through an increase any time soon.

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