Thursday, February 24, 2011

Who knows; perhaps?

MPC edges ever closer to hiking interest rates

A more hawkish mood and continuing deep divisions within the Bank of England were confirmed yesterday when the publication of the latest minutes of the Monetary Policy Committee (MPC) revealed a four-way split. While the MPC left the quantitative-easing programme of directly injecting money into the economy at £200bn and the Bank Rate at 0.5 per cent at its February session, there was "a wider than usual range of views among committee members about the outlook for growth", which reflected a "highly uncertain" outlook for growth.

Posted by sibley's b'stard child @ 11:36 AM (2215 views)
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17 thoughts on “Who knows; perhaps?

  • letsgetreadytotumble says:

    What bothers me is that some of the MPC want an increase and some don’t. If these people are top economists, and have a good understanding of the country’s economic situation, shouldn’t they all know what to do and hence all agree on the same action?
    Seems to me that very important decisions are just based on opinion.

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  • Edging is dull – get on with it!

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  • Ain’t gonna happen but it is completely irrelevant.

    The fun bit is that UK banks have to refinance £500 billion or something over the next two or three years (to repay maturing bonds, repay the government’s soft loans etc) and either they will be able to do it (so will have to borrow more expensively and raise interest rates) or they won’t be able to do it and will reduce the amount of lending massively (which will help house prices tumble and push up mortgage interest rates).

    NB, UK banks makes a colossal cash surplus from existing mortgage lending repayments and interest surplus, it is considerably more than £100 billion a year (maybe £130 billion?) so they could easily get back the £500 billion by reducing new lending to £zero. In which case house prices will nose dive.

    It’s all good.

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  • MW – agreed but much of the problem with HP’s is caused by sentiment and a rise in base rate would help sort this.

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  • TT: “much of the problem with HP’s is caused by sentiment and a rise in base rate would help sort this”

    Exactly. But TPTB know that as well, which is why they decided long ago that rates would not go up, not for decades. And let me run that through my Home-Owner-ist grammar and truthiness checker:

    “much of the wealth generated by high HP’s is caused by sentiment and a rise in base rate would be devastating to the UK economy”

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  • @letsgetreadytotumble

    “If these people are top economists, and have a good understanding of the country’s economic situation, shouldn’t they all know what to do”

    There is a huge range of differing opinions between some of the best known economists in the world about many contemporary economic issues. If anything, the MPC seem relatively close together regarding most economics issues, IMHO.

    P.S. Unfortunately, there doesn’t seem to be much dissension in the MPC from the view that high house prices are a good thing.

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  • its very simple

    the boe needed only to keep interest rates at 5-6%,make sure any lenders lent no more than what they had in deposit,and ensure borrowers could afford repayments by attending face to face interview.

    not rocket science but they failed on all fronts

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  • i remember the 90`s says:

    I used to think why can`t they see the obvious ,but imo they can and know its only a matter of time before the west goes t!ts up all i see is misery coming our way it just needed a tipping point and the middle east is providing it ,houseprices look the least of our worries.

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  • i don’t agree…people say I’m pessimistic,but all the information is out there that something very bad is going to happen…even history says the probability is there.

    imo I feel the world has funded its lifestyle with money that simply doesn’t exist and is shocked to think they may have to adjust their lifestyles

    any person knows that if you fund your lifestyle with debts you can’t afford the chickens always come home to roost in the end

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  • I meant i don’t DISagree

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  • Ain’t gonna happen but it is completely irrelevant.

    Yes, interest rate rises are a very long way off. Low interest rates are simply too crucial to the UK economy – expect a dovish replacement when Sentance leaves next month.

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  • sibley's b'stard child says:

    8. Andrew Sentance

    Mr Sentance has pursued a lonely odyssey in favour of monetary tightening since June 2010.

    *Swoon*

    My hero.

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  • They are caught between a rock and a hard place, much like the bloke in 127 hours.

    They can raise rates now (cut through their arm), which would have (subjectively) negative effects in the short term (hpc, further bank wobbles, nequity for “hard working families” etc), or they can hold steady and hope that inflation slowly takes away some of the pain (keep tugging…you’ll get free eventually!)

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  • They are caught between a rock and a hard place, much like the bloke in 127 hours.

    Not at all. BOE are simply unconcerned about inflation.

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  • mark wadsworth says:

    I did a drawing of Andrew Sentance a couple of weeks ago:

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  • A good drawing, MW.

    I think the MPC are soley concerned with propping house prices. In effect, they are looking at the impact on banks and building societies (who got us into this mess by giving out lots of cheap cash to anyone who asked)..

    The often quoted phrase “Keeping rates low for industry” is a nonsense. Industry doesn’t borrow at 0.5% does it?

    They are concerned that people will start to default if mortgage rates rise. This is punishing savers to support the profligate – yes, its all been said before…

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  • @Alan “This is punishing savers to support the profligate – yes, its all been said before…”

    Yes it has, so what are we going to do about it?

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