Viewing 18 posts - 1 through 18 (of 18 total)
  • Interest rates
  • molgrips
    Free Member

    If they put up interest rates, it would make the £ more attractive to investors and strengthen it, right?

    Will they keep interests low to try and keep £ low to compensate for Brexit?

    julians
    Free Member

    Interest rates are used as a throttle/governer on the economy, low rates when the economy needs stimulation, higher rates when the economy need slowing down.

    Rates will start to go up if the economy takes off, theyll stay low if the economy stays sluggish.

    The (simple) theory is that low interest rates cause people to spend money( and thus stimulate the economy), high interest rates cause them to save it (and slow the economy down)

    P-Jay
    Free Member

    If we believe the BOE is completely impartial and above political pressure then they’ll do whatever they can to ‘steady the ship’, but, as yet, we don’t know what post-EU Britain will look like – will we push further into a finance and service based industry – which needs a strong £ or back towards a manufacturing industry which needs a weaker one?

    Personally I don’t think rates will move, not meaningfully anyway for years to come. Every time new, higher inflation figures are announced we look to the BOE to raise rates because that’s what we’ve done in the past – but that was for a very different reason – to try to slow a booming economy – the current rate of inflation has nothing to do with a boom, it’s a direct response to everything we import or transport costing more. Wages are pretty flat – costs are going up, if you raise rates consumer spending power falls which adds to the problem, doesn’t fix it.

    If you take interest rates as an indicator of an economy’s health, the prudent thing to do would have been to tackle the EU question when we were in a better position to handle the obvious fall out – probably about 3.5% which is considered the “new normal”.

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    dazh
    Full Member

    I think he probably knew that 😉

    Rates will start to go up if the economy takes off, theyll stay low if the economy stays sluggish.

    Except that the last 10 years would seem to have thrown all that out the window. A cynical person would think the ‘independent’ bank of england were deliberately holding them down to encourage inflation in order to disappear the national debt, but that would be a conspiracy too far wouldn’t it?

    julians
    Free Member

    Except that the last 10 years would seem to have thrown all that out the window

    Has the economy taken off in the last 10 years?

    jekkyl
    Full Member

    still, not many lenders offering fixed rates beyond 5 years says something.

    deadkenny
    Free Member

    Interest rates are largely linked to inflation, and that’s what the BOE primarily go by.

    Low inflation stagnates the economy and the idea is to stimulate it with low interest rates to encourage a lot of borrowing and spending.

    If prices rise though, inflation goes up and there’s a risk of damaging the economy through high prices, so government and BOE have a target on inflation. The primary way of controlling it is with higher interest rates.

    It’s a fine balance basically.

    The £ price has an input as it affects exports and imports, but there it’s a balance too. Some benefit one way, some the other. The key is how it impacts prices and Brexit is only going to hit consumer prices one way in at least the short to mid term. With raising prices, inflation may go up and potential for interest rates to go up.

    That said, they should be going up now, but they’ve been held because other things are offsetting retail prices.

    kimbers
    Full Member

    Personal savings at an all time low, debt highest, raising interest rates… Gonna cause huge amount of pain

    Our economy is vulnerable enough thanks to Brexit, can’t see them rising much for the foreseeable

    P-Jay
    Free Member

    dazh – Member

    I think he probably knew that

    Rates will start to go up if the economy takes off, theyll stay low if the economy stays sluggish.

    Except that the last 10 years would seem to have thrown all that out the window. A cynical person would think the ‘independent’ bank of england were deliberately holding them down to encourage inflation in order to disappear the national debt, but that would be a conspiracy too far wouldn’t it?

    Our economy has been on life support since ’08, but as it’s 2017 and we’re talking 10 years, the BOE did raise rates to 5.5% this time 10 years ago to try to cool a economy that was like a runaway train – until it wasn’t.

    “encourage inflation” – perhaps a more accurate phrase would be “doing anything we possible can to avoid deflation”.

    Typically with a falling £ causing inflation and stagnant wages the BOE might try to cut interest rate to try to increase consumer spending power to off-set the increase in goods – but with rates already at .5% and 0% being a big phycological barrier – they were only really left with the empty gesture of cutting to .25%.

    dazh
    Full Member

    Has the economy taken off in the last 10 years?

    I think you’d be hard pushed to argue that management of interest rates over the past 10 years has followed previously established conventions…

    “encourage inflation” – perhaps a more accurate phrase would be “doing anything we possible can to avoid deflation”.

    Possibly, but I would think a more obvious explanation is that we have a massive national debt, and the easiest and time-honoured method to get rid of it is to inflate. If that’s the case though, it would suggest the BOE is not as independent as the politicians claim.

    soulrider
    Free Member

    Communism anyone?
    No one has anything (except the elite – how does that work??) therefore interest rates and inflation mean nothing.
    and everyone is happy… erm…..

    deadkenny
    Free Member

    soulrider – Member 
    Communism anyone?
    No one has anything (except the elite – how does that work??)

    That’s failed communism. It’s supposed to work that everyone has the same, and all are prospering with a nice life and the state looks after you. Basically the Federation in Star Trek is communism (no money, everyone works for the betterment of themselves and society, or some such lefty bollox).

    P-Jay
    Free Member

    I think you’d be hard pushed to argue that management of interest rates over the past 10 years has followed previously established conventions…

    Well the BOE doesn’t cut rates the quarter before a General Election, but I don’t think that’s what you mean.

    You’ll notice a big spike in the late 80’s – a real humdinger of a housing market boom, rates raised to 15% for a few months to cool things off – caused the early 90s recession which saw a big cut.

    In the mid-90s things go through the normal peaks and troughs of a recovery until the late 90’s when control was passed to the BOE – the BOE are less reactionary so tend to avoid the big spikes – the big sea change in the 90s though wasn’t the BOE – it was the “new normal” of house prices meaning instead of a single working parent and a house of 2/3 times their income – it’s now more normal to see both parents working and a house (the same house) being 4 times their combined income – which means a smaller rate change has a greater effect as the mortgage is now a much bigger slice of peoples outgoings.

    Fast forward to ’08 and the start of the ‘great recession’ – if we’d relied on “established conventions” then we would have seen a 21st Century Depression, real, intolerable hardship, hunger, homelessness, despair – but a short one – 2-3 years of hard ‘correction’, but we didn’t we saw a much longer period of uncertainty – this was because the root cause was the collapse of the banks – so we cut interest rates to the bone to ensure everyone who over-extended themselves to buy a house, could still afford to pay the mortgage, this kept prices high and banks solvent and we were always looking at a decade or more of it to allow things to correct – we were just starting the process when the referendum happened.

    relying on “established conventions” is just stupid – economics is far more complex than that, you do what you can, with the tools are your disposal – not just whatever we did last time ‘because’.

    Possibly, but I would think a more obvious explanation is that we have a massive national debt, and the easiest and time-honoured method to get rid of it is to inflate. If that’s the case though, it would suggest the BOE is not as independent as the politicians claim.

    It’s hardly political intervention that would make the BOE look to reduce the National Debt, it’s in the UK interest to do that, the BOE works for the UKs interests.

    You do know that until June of last years inflation has been between none and sod all for years?

    dazh
    Full Member

    no money, everyone works for the betterment of themselves and society, or some such lefty bollox

    True, such a shocking and dystopian vision for the future 🙄

    If you’re going to bring Star Trek into it, do some more reading.

    molgrips
    Free Member

    If that’s the case though, it would suggest the BOE is not as independent as the politicians claim.

    Well not necessarily. Politicians might need inflation to erase debt to make them look good, but the rest of us also need it for more practical purposes. More a case of aligned priorities than any kind of conspiracy.

    P-Jay
    Free Member

    molgrips – Member

    If that’s the case though, it would suggest the BOE is not as independent as the politicians claim.

    Well not necessarily. Politicians might need inflation to erase debt to make them look good, but the rest of us also need it for more practical purposes. More a case of aligned priorities than any kind of conspiracy.

    Exactly, whilst they’re supposed to be above political pressure – that’s limited to silly short-term things like, Governments dropping interest rates by .5% 3 months before a general election to increase the “feel good factor” and win re-election.

    It would be pretty damaging to have a Government and it’s Chancellor of the exchequer laying out a plan for the future based on going one way and the BOE going another – in reality the CotE is a politician and might easily have been in charge of Education 6 months before or spent the last 10 years fighting for office – it’s up to civil servants to advise them, the BOE will be a huge part of that.

    Mooly
    Free Member

    jekkyl – Member
    still, not many lenders offering fixed rates beyond 5 years says something.
    Really – I have recently locked my mortgage in for 10 years at a reasonably low 2.7%.

    soulrider
    Free Member

    That’s failed communism. It’s supposed to work that everyone has the same, and all are prospering with a nice life and the state looks after you. Basically the Federation in Star Trek is communism (no money, everyone works for the betterment of themselves and society, or some such lefty bollox).

    Nicaragua had that kinda working (depending on which account of the situation you read) until ‘murica **** yeah decided that 2 lots of commy’s on the doorstep was too much.

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