Monday, June 6, 2011

Credibility ! My sides are splitting, stop it, your killing me ;-)

Raising interest rates now 'would destroy Bank of England's credibility

The Bank of England would destroy the "last vestiges" of its credibility if it raised interest rates this week, according to new analysis which counters suggestions that rising prices will force policy-makers to act soon.

Posted by happy mondays @ 08:44 AM (2724 views)
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14 thoughts on “Credibility ! My sides are splitting, stop it, your killing me ;-)

  • happy mondays says:

    Good comment taken from a reader ——
    If they raise interest rates then we’re going to see a long overdue correction in property prices. Then the banks are going to a) have to revalue their mortgage assets and b) reduce their margin on lending (which currently stands at about 2.5 times what it was before the crisis) The net effect of which will be another financial crisis in the UK with banks failing to meet their capital ratios and possibly another bailout..with money we don’t have.

    If they don’t then the rest of the world will move on and sterling will plummet, causing huge inflation in commodity prices for the UK and an even greater squeeze on the economy. They’ll then have to jack rates up quickly and that really will result in blood in the water.

    I personally think Sentance was right all along. Rates should have been eased up gradually over the last 18 months or so to a more normal position, or at least 2% or so, to avoid the panic scenario.

    I suspect they are all like ostriches with their heads buried in the sand because this isn’t going to turn out well whatever they do now.
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  • ‘It is hard to see how the MPC majority could now concede a rate increase without admitting that their economic analysis had been flawed from the outset,” Mr Lewis said. “If a rate increase was not justified last year, when economic demand appeared to be rising satisfactorily, why should it be justified now that demand is slowing alarmingly? It could only be on the basis of the MPC’s recognition that inflation was running out of control. For the MPC to reach that conclusion would be tantamount to an admission that the Bank’s policy had all along been misguided.”
    What kind of an argument is that? Keep doing more of the wrong thing rather than admit you were wrong?
    We need to get rid of this bunch of bankers who have vested interests in keeping IR low. Any suggestions? I’m thinking of lobbying my MP.

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  • A small peaceful protest group outside of the monthly MPC meeting might get the ball rolling.

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  • keeping interest rates low is reducing saver’s deposits for homes and crippling the elderly who rely upon savings interest to top up their pensions. Government is looking after the home owners.

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  • Dieselfreak says:

    @will : 4

    they are looking after the indebted, which includes the government.

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  • Correction “Government is looking after the banks”

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  • 4. will

    And the home owners are looking after the two factions that are looking after themselves. This select group is destroying countries in the

    name of globalism, terrorism, climate change, wars, financial reform…..

    none of which has a proven track record, evidence that hasn’t been tampered with or challenged in a meaningful way.

    It’s down to the people now. We have all been betrayed by the people ‘some’ entrusted and it will only get worse over time.

    ~ In my dreams I’m seeing heads roll.

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  • I’ve not even read this shill article. From it’s double-speak title it doesn’t deserve to be read.

    How about “raising interest rates now would destroy inflation = GOOD THING”.

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  • If they increase rates not it will strengthen the £ and lower inflation.

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  • Should have read:

    If they increase rates now it will strengthen the £ and lower inflation.

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  • mark wadsworth says:

    Re what Will & Khards say, that’s the essence of Home-Owner-Ism – They (the government, the MSM) pretend that they are looking after homeowners, but they are not really, all they are doing is looking after THIS generation of homeowners (and landlords) at the expense of future generations of homeowners and the taxpayer generally, because really HOism is about looking after the BANKS who benefit from house prices being as high as possible as well as all the lovely taxpayer funded subsidies.

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  • The argument made in the article is non-sensical – would the BoE gain credibility through waiting another year? Of course not.

    The issues are two-fold:

    Firstly, that having IRs below inflation is an abnormal situation. Abnormal situations have a bad habit of ending in tears when people become reliant on them, so it is wise and prudent to normalise at the earliest opportunity.

    Secondly, the rise of sovereign debt obligations on a global scale are without precedent, and the low interest rates that this borrowing is being graced with is a clearly unsustainable scenario. The risk of sovereign default looks badly underpriced for all but the most obvious basket-cases, and a major upset looks highly probable. Against that, the BoE should take a defensive position – better to raise rates before they are forced to.

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  • It is noticable that there is now a regular press release a few days prior to the MPC interest rate decision, bleating on about why interest rates should not rise – IMO it simply conditions people for Thursday’s no surprises announcement that the base rate will remain at 0.5%

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  • Cornishtinmine says:

    Well sooner or later pensioners, savers, those with no debt and those on low incomes will rise up against the Government and the BoE if inflation continues to stay well above target, incomes are not increasing and savings are being eroded by inflation – whilst those on high incomes with large mortgages are smugly paying off their debts and enjoying much more disposable income… Why should those who have been prudent pay for the economic mess created by those who have arguably been irresponsible, including the bankers… perhaps all savers will get together and arrange another run on a high street bank if that is the only way to get the Government and BoE to wake up to the inequality they are creating?

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