When do you think interest rates will rise?

by Property118.com News Team

10:03 AM, 16th April 2011
About 10 years ago

When do you think interest rates will rise?

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When do you think interest rates will rise?

My business partners keep a very close eye on the economy by attending several Bank of England briefings and reading their agents Summary Business Reports and minutes of meetings, all of which are publicy available and shared here.

The bottom line appears to be that it will damage the future growth of GDP if interest rates rise whilst there is no demand based inflation.  Sure, inflation does exist, look at what’s been happening to the price of fuel.  However, that’s not demand based inflation.  Increasing interest rates will not affect the price of oil as that’s controlled globally.  For these reasons, the Bank of England’s Monetary Policy Committee appear to be suffering a confidence crisis.  They have to account to government because they are not hitting their 2% inflation targets but they can’t control the issues that are causing this inflation.  Strip out the elements of the economy they can’t control and that leaves us in a deflationary position in real terms.

So what can be done?

Employers margins are being squeezed and so are the budgets of all the people in this country.  Employers can’t increase wages as this will squeeze their margins even more and we will have more business closures and even more unemployment.

So what’s the answer?

When do you think interest rates will rise and why?

Looking forward to reading your comments.

Regards

Mark Alexander



Comments

Richard Greenland Richard

7:54 AM, 21st April 2011
About 10 years ago

What can be done? What is the answer? Mark I'm not sure there is one. What do you think?

It may be that as the global hegemony moves east, we have to ajust to harder times and our western economies being buffeted by demand and turbulence elsewhere. High oil and commodity prices are an example.

Mark Alexander

8:47 AM, 21st April 2011
About 10 years ago

I'm glad I don't have to make the decisions Rich. Long term I think the Hong Kong model of very low taxation is the way forward in order to re-establish a UK manufacturing base and give us something to export and increase our wealth. However, even if that started now, the full long term benefits would be inlikely to be witnessed during our lifetimes. The transition will be the tough part. For me it's very difficult to see too far beyond where we are right now. I have an vision of the direction I would like to see the UK economy heading but the journey needed to realise that vision is incredibly blurred.

11:25 AM, 22nd April 2011
About 10 years ago

Whilst public debt is very high, increasing interest rates will make it harder for the US and the UK to pay the costs of their sovereign loans. Whilst recognising that it is multi-variate and complex, I think one factor is the UK government will want to keep interest rates low whilst they focus on paying down debt. I would guesstimate 2012 before interest rates rise.

Simon Jenkins

9:42 AM, 29th April 2011
About 10 years ago

Its very short term to consider the current high inflation. As you say, Mark most of the inflation is generated globally or as a result of BoE policy to let the pound drift down (that's why it took them seven months to bring BBR to 0.5%). Home grown inflation by wage growth is unlikely.

Don't forget though QE. Whilst not quite the politics of a banana Zimbabwi republic it is still nevertheless inflationary, period! It will have to be withdrawn over time. This will contract the money supply (the reason it was brought in in the first place was to boost the supply, King was very clear on this) and will exert downward pressure on inflation. Sustaining the money supply is vital to allow banks to repair their balance sheets so don't rule out a UK style QE2.

Withdrawl from QE differs in the US to UK. US will sell off assets ahead of rate rises. BoE will do the opposite. The principle is the same. A return to normality will require not only 5% rates but that all QE assets held by central banks are sold back to the private sector. This will not happen overnight.

I am still in the "worry about deflation" camp when QE comes off. I believe King is too. Don't forget the hawk, Andrew Sentence is retiring from the MPC and Weasel (sorry, Weizle) is on record saying he may reverse his stance in the light of Q1 GDP.

This leads to another problem. Those who listened to Mark about four or five years ago will be sitting on a large pot of cash by now. I did and I'm bloody glad I listened to him post Lehman. However, with the withdrawl of QE, getting an excellent return on this cash may be difficult - equities may well be hit.


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