What is the chance of interest rates rise.
Discussion
birdcage said:
When they do they will go up rapidly but I have heard predictions of not much happening before 2011..
I doubt that. At least if the Conservatives win that is. Drastically reduced public spending coupled to tax rises will keep the lid on interest rates. (that is not to say that rates will not go up at all, they will rise to a little above inflation) It could happen quicker than most people think
"The UK is issuing more debt as a share of GDP than any major economy. We're borrowing twice as much in 2009 as France and Germany. In recent months, banana-republic style, the Bank of England itself has bought around half of all gilts issued.
Then on Thursday, following the biggest auction of index-linked sovereign debt in UK history, a massive dispute broke out, with investors publicly accusing the authorities of bad faith after the Bank hinted, just 20 minutes after the sale had closed, that it may soon stop buying gilts."
http://www.telegraph.co.uk/finance/comment/liamhal...
Bond vigilantes probably don't care about your mortgage repayments.
"The UK is issuing more debt as a share of GDP than any major economy. We're borrowing twice as much in 2009 as France and Germany. In recent months, banana-republic style, the Bank of England itself has bought around half of all gilts issued.
Then on Thursday, following the biggest auction of index-linked sovereign debt in UK history, a massive dispute broke out, with investors publicly accusing the authorities of bad faith after the Bank hinted, just 20 minutes after the sale had closed, that it may soon stop buying gilts."
http://www.telegraph.co.uk/finance/comment/liamhal...
Bond vigilantes probably don't care about your mortgage repayments.
Edited by Fittster on Sunday 26th July 13:46
An increase is a dead cert.
How much? and When? are the questions
I don't think that the government will permit rates that are much higher than 6 percent.
It is now 10 years since we saw rates over this and for most of that time rates were less than 5. The longer rates stay low the more people will come to percieve lower rates as "normal". This means a corresponding decrease in rates seen as "high".
As long as the electoral damage self inflicted by the Tories and "high interest rates" is in popular memory politicians will not allow rates to be percieved as "high".
My guess is that as rates go over 5 percent we will start to see other tax and benefit mechanisms put into place to prevent any damage.
Ultimately the BofE will be told to come into line even if it is absolutely correct. Ploiticians would rather ruin the economy in way not percieved as "bad" than knowingly repeat a past "bad" mistake.
How much? and When? are the questions
I don't think that the government will permit rates that are much higher than 6 percent.
It is now 10 years since we saw rates over this and for most of that time rates were less than 5. The longer rates stay low the more people will come to percieve lower rates as "normal". This means a corresponding decrease in rates seen as "high".
As long as the electoral damage self inflicted by the Tories and "high interest rates" is in popular memory politicians will not allow rates to be percieved as "high".
My guess is that as rates go over 5 percent we will start to see other tax and benefit mechanisms put into place to prevent any damage.
Ultimately the BofE will be told to come into line even if it is absolutely correct. Ploiticians would rather ruin the economy in way not percieved as "bad" than knowingly repeat a past "bad" mistake.
cymtriks said:
An increase is a dead cert.
How much? and When? are the questions
I don't think that the government will permit rates that are much higher than 6 percent.
It is now 10 years since we saw rates over this and for most of that time rates were less than 5. The longer rates stay low the more people will come to percieve lower rates as "normal". This means a corresponding decrease in rates seen as "high".
As long as the electoral damage self inflicted by the Tories and "high interest rates" is in popular memory politicians will not allow rates to be percieved as "high".
My guess is that as rates go over 5 percent we will start to see other tax and benefit mechanisms put into place to prevent any damage.
Ultimately the BofE will be told to come into line even if it is absolutely correct. Ploiticians would rather ruin the economy in way not percieved as "bad" than knowingly repeat a past "bad" mistake.
Not a chance. If the Tories get in and do what they seem to be saying; huge cuts in public spending and tax rises, then the problem will be deflation rather than inflation.How much? and When? are the questions
I don't think that the government will permit rates that are much higher than 6 percent.
It is now 10 years since we saw rates over this and for most of that time rates were less than 5. The longer rates stay low the more people will come to percieve lower rates as "normal". This means a corresponding decrease in rates seen as "high".
As long as the electoral damage self inflicted by the Tories and "high interest rates" is in popular memory politicians will not allow rates to be percieved as "high".
My guess is that as rates go over 5 percent we will start to see other tax and benefit mechanisms put into place to prevent any damage.
Ultimately the BofE will be told to come into line even if it is absolutely correct. Ploiticians would rather ruin the economy in way not percieved as "bad" than knowingly repeat a past "bad" mistake.
My view is that Richard Koo is right (Nomura Securities Chief Economist - well worth a YouTube look) in that this is a Japanese style balance sheet recession where everyone will be too busy paying down the historically high levels of debt we have at the moment to worry about inflationary pressures.
The worry of imported inflation through a weak currency is the big risk, but in a world of competitive devaluation, and with the next government, whoever it is, having to slash spending and thereby gilt issuance, this is probably less of threat than it might otherwise be.
A balance sheet recession implies low interest rates for some time. In mortgage terms, I would get a capped one in this circumstance.
cymtriks said:
An increase is a dead cert.
^^^ This.They have been kept artificially low for a decade, resulting in real inflation well above the published figures for the vast majority. House price inflation is the most obvious one, but food and fuel prices are also in the ball-park.
But Gordon, or his successor, won't be able to hide the truth forever. Interest rates will rise to somewhere near real inflation rates eventually. And that is somewhere nearer 10%, if not over that.
The only question is 'when?'. Not before the next election is a pretty safe bet, but then...
grumbledoak said:
cymtriks said:
An increase is a dead cert.
^^^ This.They have been kept artificially low for a decade, resulting in real inflation well above the published figures for the vast majority. House price inflation is the most obvious one, but food and fuel prices are also in the ball-park.
But Gordon, or his successor, won't be able to hide the truth forever. Interest rates will rise to somewhere near real inflation rates eventually. And that is somewhere nearer 10%, if not over that.
The only question is 'when?'. Not before the next election is a pretty safe bet, but then...
I'm not convinced about 10% rates, but I think we will see 5-6% rates back again. Historically that's low; I can remember my mortgage rate being over 14% at one point and I vaguely recall that was under a Tory government ?
The Bank Rate started dropping around the end of last year, which brought mortgages down & hence artificially reduced the official inflation figures. That effect will work itself out by January 2010. Also in January 2010 the VAT goes back to 17.5%, with talk of 20% rates on some things, which is another real-world inflation jump.
There is no way that Labour will introduce public spending cuts before the next election, so despite decrying inflation, the only way forward for them is to inflate the country out of debt. The snag is that these days we depend more than ever on imports & foreign investment/borrowing, and would you invest or lend to a country which is deliberately deflating your returns ?
However you work it out, by December this year we will have an underlying inflationary spiral which the BoE can address either by slowly increasing the BR or doing nothing over Christmas and then having to make large increases. My bet is for a slow increase which won't panic the markets as much as a 1% jump would.
If Labour were to winthe next election, S&P would instantly cut the UK's credit rating and interest rates would rise. The only reason S&P have not cut the rating yet is that they expect a change of government by next summer.
If the new Tory government does not show sufficient rigour, there is still chance that S&P will cut the rating later next year, in whcih case rates will rise.
It is highly likely that rates will rise at some point in the next two years.
If the new Tory government does not show sufficient rigour, there is still chance that S&P will cut the rating later next year, in whcih case rates will rise.
It is highly likely that rates will rise at some point in the next two years.
loafer123 said:
My view is that Richard Koo is right (Nomura Securities Chief Economist - well worth a YouTube look) in that this is a Japanese style balance sheet recession where everyone will be too busy paying down the historically high levels of debt we have at the moment to worry about inflationary pressures.
The worry of imported inflation through a weak currency is the big risk, but in a world of competitive devaluation, and with the next government, whoever it is, having to slash spending and thereby gilt issuance, this is probably less of threat than it might otherwise be.
A balance sheet recession implies low interest rates for some time. In mortgage terms, I would get a capped one in this circumstance.
AgreedThe worry of imported inflation through a weak currency is the big risk, but in a world of competitive devaluation, and with the next government, whoever it is, having to slash spending and thereby gilt issuance, this is probably less of threat than it might otherwise be.
A balance sheet recession implies low interest rates for some time. In mortgage terms, I would get a capped one in this circumstance.
http://www.bloomberg.com/apps/news?pid=20601109&am...
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