Monday, January 24, 2011

MPC may start raising interest rates as early as March 2011 (Simon Ward – Henderson GI)

MPC may start raising interest rates in March, says Ward

The Monetary Policy Committee (MPC) may start raising interest rates as early as March this year, according to Simon Ward, the chief economist at Henderson Global Investors. The minutes of January’s MPC meeting, which kept rates on hold again at 0.5%, are released on Wednesday. Ward says if these show that Andrew Sentance received more support among fellow MPC members for a rate rise, then the first hike could happen as soon as March. “Either rates will rise soon or they won’t at all,” says Ward.

Posted by jack c @ 03:07 PM (2761 views)
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13 thoughts on “MPC may start raising interest rates as early as March 2011 (Simon Ward – Henderson GI)

  • I bet you that they don’t!

    The mornings are getting much lighter now.

    Draw your net curtains back and fill your lungs and minds with happy thoughts why don’t you.

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  • sibley's b'stard child says:

    In fairness Smugdog, you’re probably right.

    I was thinking about this over the weekend funnily enough (yeah, yeah, get out more). Without any scientific/economic rationale whatsoever I had toyed with the notion that the MPC would want to avoid the psychologically significant headline of ‘IRs held at 0.5% for 2 years’ so banging in a 0.25% increase in March.

    Any takers?

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  • Interest rate hike ‘would be suicidal’

    Story by: By Nick Reeve Magazine: InvestmentAdviser Published Monday , January 24, 2011

    Any decision to increase UK interest rates could be “GDP suicide”, M&G Investments’ Jim Leaviss has warned.

    The group’s head of retail fixed interest said he believed the Bank of England could be “on the brink of a policy error” if it chose to raise interest rates by the 0.5 percentage points predicted by money markets.

    He said: “Rate hikes would kill core inflation, but they would also be GDP suicide in this fragile economy, bringing deflation risks back into play.”

    Last week it was announced that, according to the Consumer Prices Index, inflation had risen to 3.7 per cent – an eight-month high, and well above the Bank’s original prediction.

    Mr Leaviss said that, as inflation rates had already exceeded the government’s target of 2 per cent, the credibility of the Bank could come under attack.

    He predicted an increase in the base interest rate if inflation were to continue at its current level.

    However, he added: “Hopefully the Bank still feels it can target future inflation and has the confidence to ignore those reacting to current inflation news and calling for imminent rate hikes,” he added.

    In contrast, on the subject of an interest rate increase in the US, Mr Leaviss claimed unemployment was still far too high at 9 per cent to provoke any movement in the early part of this year.

    “We think the Fed is still massively more worried about the jobs situation than it is about generating inflation,” he said.

    “We’ve been following the Fed’s reaction to unemployment for years, and it seems that it waits for unemployment to start falling on a sustained basis before starting to hike.”

    With unemployment in the UK at 8 per cent, and without the effect of cuts to public sector jobs, Mr Leaviss said the rising cost of living, including the VAT increase and rising oil prices, was more likely to trigger a UK interest rate hike.

    SOURCE http://www.ftadviser.com/InvestmentAdviser/Investments/Region/UK/News/article/20110124/13cabde6-22fb-11e0-b638-00144f2af8e8/Interest-rate-hike-would-be-suicidal.jsp

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  • @1 Smuggie – Happy thoughts = interest rate rise.

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  • ontheotherhand says:

    Raising interest rates creates certain short term pain for probable but uncertain medium term (relative) gain. This is the very opposite of anything a public figure with a term of probably a few years is going to plump for.

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  • Wouldn’t get too excited by this.

    Even IF (a big if) they go ahead, price inflation looks likely to be a lot higher by then, so rates on savings accounts will still be miles behind price increases.

    When you think about it, it takes a special skill to engineer high unemployment AND high price inflation, but Dave is doing it like a pro.

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  • Brilliant Smugdog, just been walking in Derbyshire – it certainly gets oxygen into the bloodstream.

    On the subject of IRs, world rates are rising. The UK can’t just shut its eyes to reality (however that looks to you). Mortgage rates have already gone up for new lenders – have a look for yourself.

    We are sure to follow the Irish republic and the USA because house prices are a bubble. Even Cleggie agrees….

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  • Yawn, another ‘expert’ throws their hat in the ring with zero evidence, hoping for a spot of potential predictive glory. “Either rates will rise soon or they won’t at all.” Truly we are in the presence of genius.

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  • @ 9 yes it looks like it’s took a few really smart people to stuff up the country…Albert Einstein eat your Atoms..

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  • reuters:

    BOE’s Sentance says mistake to label all global factos elevating UK inflation as one-off
    – if we do not raise rates soon, we risk having to do so more aggressively in future
    – failure to respond to persistent above target inflation risks loss of BOE credibility
    – domestic output gap ‘rather narrow way of thinking’ in an open economy like UK
    – business surveys suggest margin of spare capacity less than simple models suggest

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  • greenshootsandleaves says:

    A few more dry runs (i.e. lots of talk but no action) would in any case be needed before IRs are allowed to go up. It’s all about reducing the public’s shockability. Remember that court correspondent classic ‘…and of course there is no suggestion of charles and Di divorcing!’?

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  • Rates won’t go up in March. When they do eventually rise it will be by .25% per time, May onward. In the meantime the banks trouser a bit more from higher rate lending “in anticipation”.
    Who now thinks HPC will occur in big dramatic falls? Yes, rates will rise a bit and unemployment has a long way to run yet,but after all lenders will be under pressure politically to keep people in mortgaged properties and financially it is better for them to have the interest paid on loans, at least, (..either by borrower or state) rather than get into protracted reposessions and fire sales at auction. However, long term price house price deflation relative to inflation seems a fairly sure bet. Rate increases will only serve to slightly speed up that rebalancing process a bit over the next three or four years. It is a long term thing a la Japan and the biggest factor determining any fall in the price of a particular property will be what property and where. There will be no rerun of the late 80s early 90s style ERM wipeout.That was a one off to the extent that there are no notional exchange rate constraints to drive similar rate increases now. Dull but this is the most likely outcome, I’m afraid.

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