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 3 months ago 42

Text Size

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

Jessie Jones View Profile

10:17 AM, 7th May 2022, About 3 months ago

On the flip side, house values are likely to soar much further if the BoE relaxes the affordability tests.
Imagine what will happen when people are able to borrow 6 times their income instead of the current 4.5 times. There will be a flood of aspiring home owners clambering for the few houses that are available and this will make house prices only go one way. And fast.
https://www.thisismoney.co.uk/money/mortgageshome/article-10565395/Bank-England-relax-mortgage-affordability-tests.html

Mick Roberts View Profile

10:23 AM, 7th May 2022, About 3 months ago

Reply to the comment left by Jessie Jones at 07/05/2022 - 10:17
That's a very good point.

Imagine what will happen when people are able to borrow 6 times their income instead of the current 4.5 times.

Well said Jessie

Daveknowstheregs

11:02 AM, 7th May 2022, About 3 months ago

On the flip side, the country is screwed and so it’s too late for FTBers. The government have so much debt now so the BOE can’t afford to raise interest rates necessary to sink property prices to their correct values and so economic disaster is here to stay.

Badger

12:57 PM, 7th May 2022, About 3 months ago

Reply to the comment left by Daveknowstheregs at 07/05/2022 - 09:01
Landlords are not responsible for house price inflation.

A prudent landlord purchases at below market rates.

I believe the most recent major bout of house price inflation was down to a government scheme to help first time buyers for example.

(And the benefit of that went largely into the pockets of the large housebuilders.)

Gromit

14:08 PM, 7th May 2022, About 3 months ago

Reply to the comment left by Badger at 07/05/2022 - 12:57
Why do you think was for new builds only?

It was the idea of big builders in the first place, sold to Govt ministers as a great plan for FTBs (and a vote winner). In return for swelling the Tory Party coffers.

Daveknowstheregs

10:17 AM, 8th May 2022, About 3 months ago

Reply to the comment left by Badger at 07/05/2022 - 12:57
Badger believes, “Landlords are not responsible for house price inflation.”

Individual landlords owning multiple properties, sometimes hundreds of houses, are not creating a housing shortage?

Really?!!!

Badger

11:14 AM, 8th May 2022, About 3 months ago

Reply to the comment left by Daveknowstheregs at 08/05/2022 - 10:17
The point that I was responding to in your original message was regarding price inflation not shortages.

Nevertheless, given that you have chosen to move the goalposts, no, I am not having a laugh, and no, I don't believe that landlords are responsible for the housing shortage either.

That charge would far more accurately be directed at those responsible for the decline in the building of new social housing in recent years.

https://www.ons.gov.uk/peoplepopulationandcommunity/housing/datasets/dwellingstockbytenureuk

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/987582/Chart105.ods

In fact, after a slight dip in the mid-2010s, the owner occupied sector is showing an upward trend.

The PRS has grown for sure, but this is in response to the need in the absence of any meaningful growth at all in the provision of social housing.

Blame Thatcher if you like, but whatever the reason, the facts are the facts.

Daveknowstheregs

11:18 AM, 8th May 2022, About 3 months ago

Well, simple maths regarding supply and demand isn’t for everyone. Clearly.

Badger

11:23 AM, 8th May 2022, About 3 months ago

Reply to the comment left by Daveknowstheregs at 08/05/2022 - 11:18
Maybe that's the problem.

Maybe your maths is a little too simple...

Gromit

12:40 PM, 8th May 2022, About 3 months ago

Reply to the comment left by Daveknowstheregs at 08/05/2022 - 11:18An English Housing Survey Report (albeit a few years ago) found that of the ~150% house price rise over the reporting period only 7% of the rise could be attributed to BTL investors.
Perhaps you could provide the source for your assertion to the contrary?

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership

or

Don't have an account? Sign Up

Landlord Tax Planning Book Now