The Bank of England and inflation
Discussion
Andrew Bailey unsurprisingly has been hinting that interest rates will rise in the near future thanks to the Orange turds campaign in the Middle East.
Raising interest rates curbs demand but the problem now is supply, surely raising interest rates too is going to really hurt the UK, possibly more than necessary?
Raising interest rates curbs demand but the problem now is supply, surely raising interest rates too is going to really hurt the UK, possibly more than necessary?
Mazinbrum said:
Andrew Bailey unsurprisingly has been hinting that interest rates will rise in the near future thanks to the Orange turds campaign in the Middle East.
Raising interest rates curbs demand but the problem now is supply, surely raising interest rates too is going to really hurt the UK, possibly more than necessary?
Core inflation is more than 50% above target, and that ignores the impact of the current energy situation.Raising interest rates curbs demand but the problem now is supply, surely raising interest rates too is going to really hurt the UK, possibly more than necessary?
Bailey and Co have little clue. They have one hammer, see nails everywhere, and have little idea which end to hold let alone how to wield it with precision.
If they do something it'll probably be the wrong thing, will have negligible beneficial effect on the actual underlying problem, and their timing will be wildly off.
If they do something it'll probably be the wrong thing, will have negligible beneficial effect on the actual underlying problem, and their timing will be wildly off.
The BoE's problem is that IRs are a very poor tool for combatting imported inflation, compared to demand-led inflation. It can exacerbate cost of living and hurt the economy leading to stagflation, ultimately weakening the £ or cancelling out any intended rise of the £ due to higher IRs.
Mazinbrum said:
Andrew Bailey unsurprisingly has been hinting that interest rates will rise in the near future thanks to the Orange turds campaign in the Middle East.
Raising interest rates curbs demand but the problem now is supply, surely raising interest rates too is going to really hurt the UK, possibly more than necessary?
It's not caused by your man in the street though so raising interest rates will only "hurt" people whilst doing nothing to curb rising prices. Haven't we been here before ...Raising interest rates curbs demand but the problem now is supply, surely raising interest rates too is going to really hurt the UK, possibly more than necessary?
TX.
Earthdweller said:
The economy is stagnating if not contracting, prices are rising
Increasing interest rates will only compound the problem
If I can see that why can't the BOE ?
Because they have one target, and one tool with which to try and hit that target.Increasing interest rates will only compound the problem
If I can see that why can't the BOE ?
What absolutely does not come into that target is the source of the inflation.
BunkMoreland said:
Mazinbrum said:
Andrew Bailey unsurprisingly has been hinting that interest rates will rise in the near future thanks to the Orange turds campaign in the Middle East.
I like that you blame Trump for the Iranians mining the Straight of Hormuz, and firing on any vessel that sails through it. Also the same Iranians that threw missiles at civilian targets at neighbouring states who have never attacked it.I suppose you think it best we just ignore the evil dictatorship in Iran, that is actively trying to build nuclear weapons, and just this year has executed 10s of thousands of its citizens, since it might cause some financial problems for a while
For me, I'm in support of the Iranian regime being removed - however, to do so would require proper planning and crucially the will to see it through fully with the Iranian/Persian people.
What Trump did, wasn't any of those things. The regime is still in place, the disruption isn't worth it - and there's now no longer term goals or plans.
That doesn't mean I think the BoE should do it's hammer thing and increase interest rates. If anything, I think we still need stimulus through cuts!
Can someone with more intelligence than me explain why we didn't get a period of high inflation after the global financial crisis and the dropping of rates thereafter? I appreciate things might not be as bad as they were in 2008-2012 but from what I see and read things are not great at all on a number of fronts and disposable income for the average Joe seems to be at an all time low.
Increasing rates won't make things much different for the average man on the street given the inflationary events are external. It will only make people poorer. I appreciate raising rates might strengthen the £ against the $ but so what? If you try and tell that to a shop worker in hull they'll look at you like youre an alien- all they'll know is they cannot afford their mortgage on their 2 up 2 down which by all accounts they should really be expected to afford.
Increasing rates won't make things much different for the average man on the street given the inflationary events are external. It will only make people poorer. I appreciate raising rates might strengthen the £ against the $ but so what? If you try and tell that to a shop worker in hull they'll look at you like youre an alien- all they'll know is they cannot afford their mortgage on their 2 up 2 down which by all accounts they should really be expected to afford.
UK interest rates need to be whatever it takes to sell bonds.
That's how it is when your economy is a loss-making dog pile.
Government deficit and the trade gap need foreign money flowing in.
The UK is not self-contained, it has to operate in the context of the US, euroland and other financial markets.
That's how it is when your economy is a loss-making dog pile.
Government deficit and the trade gap need foreign money flowing in.
The UK is not self-contained, it has to operate in the context of the US, euroland and other financial markets.
fflump said:
The BoE's problem is that IRs are a very poor tool for combatting imported inflation, compared to demand-led inflation. It can exacerbate cost of living and hurt the economy leading to stagflation, ultimately weakening the £ or cancelling out any intended rise of the £ due to higher IRs.
Exactly.It's circumstances like these where govt policy needs to take more of a front seat and where a link between the BoE's powers and govt policy would be preferable. IF no11 wasn't full of f
kwits. Ergo that would still be a terrible idea even now.princeperch said:
Can someone with more intelligence than me explain why we didn't get a period of high inflation after the global financial crisis and the dropping of rates thereafter?
It did cause massive asset price inflation - bailing out those with big mortgages but making it harder for generation rent and those living off cash savings e.g. pensioners but not asset wealthy (their main home aside).princeperch said:
Can someone with more intelligence than me explain why we didn't get a period of high inflation after the global financial crisis and the dropping of rates thereafter? I appreciate things might not be as bad as they were in 2008-2012 but from what I see and read things are not great at all on a number of fronts and disposable income for the average Joe seems to be at an all time low.
Cutting rates didn t feed through to the real economy because the transmission mechanism was broken. Banks balance sheets were impaired so they were unable to lend in any meaningful or competive way to the real economy. The rate cuts from the BofE were designed to increase bank revenues so they could repair their balance sheets and be able to lend at competitive rates again (over years not weeks or months) Companies that had access to the financial markets directly eg multi nationals and larger corporates could access the cheaper rates but SME’s and individuals couldn t. They borrow from banks.
Pretty much every UK bank except HSBC had a huge hole in its balance sheet .RBS was technically insolvent and spent several years after the GFC writing down the losses it couldn t take at the time of the bailout. If it had taken them it would have been nationalised which would have been a whole different level of calamity.
Similar story repeated across Europe many European banks had serious problems.
Edited by Cheib on Monday 4th May 22:09
OutInTheShed said:
UK interest rates need to be whatever it takes to sell bonds.
That's how it is when your economy is a loss-making dog pile.
Government deficit and the trade gap need foreign money flowing in.
The UK is not self-contained, it has to operate in the context of the US, euroland and other financial markets.
Ahh, someone gets it. Its all a sham.That's how it is when your economy is a loss-making dog pile.
Government deficit and the trade gap need foreign money flowing in.
The UK is not self-contained, it has to operate in the context of the US, euroland and other financial markets.
OutInTheShed said:
UK interest rates need to be whatever it takes to sell bonds.
That's how it is when your economy is a loss-making dog pile.
Government deficit and the trade gap need foreign money flowing in.
The UK is not self-contained, it has to operate in the context of the US, euroland and other financial markets.
The BOE only sets short term rates. Bond rates are set by the market.That's how it is when your economy is a loss-making dog pile.
Government deficit and the trade gap need foreign money flowing in.
The UK is not self-contained, it has to operate in the context of the US, euroland and other financial markets.
JoshSm said:
Bailey and Co have little clue. They have one hammer, see nails everywhere, and have little idea which end to hold let alone how to wield it with precision.
If they do something it'll probably be the wrong thing, will have negligible beneficial effect on the actual underlying problem, and their timing will be wildly off.
A good analogy.If they do something it'll probably be the wrong thing, will have negligible beneficial effect on the actual underlying problem, and their timing will be wildly off.
Once upon a time, a long time ago, changing interest rates had an immediate impact on mortgage rates paid by everyone. Now everyone has a fixed term deal and so tinkering with rates only impacts the small number whose deal is coming to an end.
I noticed that current the rate if you want to negotiate a deal on a used MINI was 19.6%. That will be an expensive long term deal and again the BoE will have zero impact. Some people are simply financially dumb and cannot be influenced when making impulsive purchases.
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