Bank Base rate kicking us when we’re down

Bank Base rate kicking us when we’re down

12:21 PM, 5th May 2022, About 2 weeks ago 42

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The Monetary Policy Committee have voted by a majority of 6-3 to increase Bank Rate by a quarter-point to a full 1% with 12 month CPI inflation rising to 7.0% in March, around 1% higher than expected in the February Report.

This is despite the vast majority of inflationary pressure coming from external global costs that we can’t control. The price of food is the price of food and as an essential item, an increase in interest rates is not going to control our demand or the costs. The same argument largely goes for energy and fuel.

The counter-argument is that pushing up interest rates increase the flow of money into Sterling boosting its value and decreasing the cost of goods purchased in foreign currencies.

The MPC has reaffirmed its preference in most circumstances to use Bank Rate as its active policy tool when adjusting the stance of monetary policy and has indicated further rises are predicted to be required up to around 2.5% by mid-2023, before falling to 2% at the end of the forecast period.

CPI inflation is expected to rise further over the remainder of the year, to just over 9% in 2022 Q2 and averaging slightly over 10% at its peak in 2022 Q4.

Wage growth is considered a risk factor for inflationary pressure with unemployment continuing to fall to 3.8%. However, there are some signs that the cost of living crisis is already affecting consumer demand.

The overall conclusion is we will have to wait and see what happens to the global markets and supply chains over the coming months and year before a clear indication of how long it will take cost inflation to wind out.



Comments

by steve p

17:24 PM, 5th May 2022, About 2 weeks ago

The BoE base rate does not take into account of BTL mortgages... 1% is still historically low, and anyone that thought that interest rates would stay so low forever and built a business model on that without any sort of contingency frankly has overstretched themselves so will have little sympathy..

by Mick Roberts

8:04 AM, 6th May 2022, About 2 weeks ago

Well said Neil:
This is despite the vast majority of inflationary pressure coming from external global costs that we can’t control.

Yet u and I know they gonna carry on as can't be seen to be doing nothing. Some of us are and will be ready. I was losing £200pm on some of my houses in 2007 2008 2009ish. So us that's been there, base our models on if interest rates were 6% and have been overpaying our mortgages as know times like this may come. Please overpay people. You'll come thank me & Neil & Steve P in 20 years.
I'm in Tenerife by the way. Just saying Like. Cause I've overpaid my mortgages, so why not treat myself with the excess.

TenerifeHotelCleopatraTues3May2022
https://photos.app.goo.gl/Bmsw2AGzj7CMagSE6

Just saying Like. Thought I'd mention that again.

by Neil Patterson

8:18 AM, 6th May 2022, About 2 weeks ago

Have a Fab time Mick 🙂

Sterling took a pasting, but the Fed put up rates and expectations were for a Bigger projected increase by the BofE so it could have been worse.

by northern landlord

10:34 AM, 6th May 2022, About 2 weeks ago

Reply to the comment left by Mick Roberts at 06/05/2022 - 08:04
Careful Mick. How dare you go on holiday! I can just see the headlines if Polly at Shelter gets hold of this news “Grasping landlords go on luxury holidays using ill- gotten gains extracted from their struggling tenants” You have also unfortunately given your location away, I expect ACORN will be sending a hit squad round to harass you as you sit by the pool! Seriously, relax and have a good one.

by Mick Roberts

11:56 AM, 6th May 2022, About 2 weeks ago

Reply to the comment left by northern landlord at 06/05/2022 - 10:34
Ha ha yes.
I used to get it off the odd new tenant when I was driving me Porsche or Lamborghini.
Ooh u doing alright aren't u. U can afford to let me off the rent, u don't need it
I'd say Yes course I can, if u pay me for the years I'd lost on your house. And u never felt sorry for me when I drove a van for 20 years.

Me long standing tenants know I've come from nothing and looked after em. I can hold.me head high when I'm charging several £500pm when all surrounding rents are £850pm and I can still afford to live. However, I keep saying I/we are not charities, and just cause some of us can afford to house these people at subsidised rents, u push us too far and we'll join the landlords selling in bringing our selling date forward.

by Gromit

7:46 AM, 7th May 2022, About 2 weeks ago

I think raising interest rates is only Government spin, if anything Sterling fell against both USD & Euro on Thursday.
As the OP says using interest rates to control inflation is used to dampen down spending but as inflation currently is on essential spending (fuel & food), raising interest rates will not have any effect on inflation and is just a kick in the gut for people who are struggling already.

For Landlords its a double whammy for many with mortgage interest likely to increase, and tenants increasingly defaulting on rent (and being protected by Government more & more from eviction).

by Andrew57

8:49 AM, 7th May 2022, About 2 weeks ago

The BofE are out of touch and clearly don't understand. Interest rate rises is the way the bank reduces peoples spending to bring inflation down. Unfortunately current spending is on essentials and not luxuries, so raising interest rates will simply make it harder to buy the essentials people still need to buy.

by Daveknowstheregs

9:01 AM, 7th May 2022, About 2 weeks ago

The BOE have created this monster. As landlords we will get no sympathy building a business from people’s homes. We cannot have our cake and eat it. Enjoy your holiday Mick. We have caused house prices to be ridiculously too high by competing to expand our income and so this is too little too late for FTBers, but hopefully with a step in the right direction IF it can help reduce the cost of a buyer’s home. We need 6% inflation minimum.

by Daveknowstheregs

9:12 AM, 7th May 2022, About 2 weeks ago

Reply to the comment left by Daveknowstheregs at 07/05/2022 - 09:01
6% interest rates minimum, that is.

by Daveknowstheregs

9:17 AM, 7th May 2022, About 2 weeks ago

Reply to the comment left by Daveknowstheregs at 07/05/2022 - 09:12When a home worth £30k, costing under £1k to build is now valued at £250k+ the system is broken, so the BOE, the governments and mortgage companies have caused a financial headache for the world, not just the UK.

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