UK Interest Rates - do they need to be tweaked up a little?

Eugh. I really want to go into a long babble about this with my Analyst hat on..

Simply put, they should have been raised a LONG time ago, but because everyone has borrowed upto the hilt because of the 'i want it, ill pay for it later' mentality, they have to keep them as low as possible for as long as possible, otherwise the Government will end up having to bail everyone out, like they had to with Cap & Collar Mortgages after the rates fell in 07/08

Low rates benefit people who just borrow and borrow, rather than reward those that bother to financially plan, and actually save.

**If people want me to go deeper, I can draw up some graphs from my Discount Factor Model.

 

0.5% would last for a good 9 months min on current projections. 3 months for reaction, and then 6 to get 2xQTR results to back it.

Slow and steady is better, as if were not careful, hello stagflation!

 

As someone with a maxed out overdraft, I probably should want rates to stay where they are... But given the BoE base rate does not, and never has, even remotely affected what my bank charges me for it... I don't really care...

 

The central banks monetary policy is frankly laughable they have made a total mess of the economy since the late 90s.

The govt/bank want inflation to get rid of the debt so its unlikly they will rise rates by much.

 

IIRC Shelter predicted in 2014 that a 1% rise in interest rate would lead to something like 1 in 11 people defaulting on their mortgage, i can't see that having changed in the last couple of years so even a small rise would/could have devastating consequences for people and our already weak GDP (0.2% last Qtr iirc) growth.

 

I doubt they are going to raise interest rates any time soon, the housing market isn't doing well enough for it:

http://news.sky.com/story/housing-market-hit-by-political-uncertainty-rics-10946616

 

But wouldn't the stark reality be that if rates went up, people default, then there would be more houses on the market?

 

@adidan, Yes but that causes a ripple effect, more houses means less demand and falling prices, falling prices lead to people being in negative equity, we'd basically risk bursting the housing bubble.

Then there's also fewer people spending money on things other than their mortgage resulting in a fall in consumer spending, resulting in firms not wanting to invest, ultimately resulting in a possible recession.

Someone like Mankz or Disequilibria could probably go in to much greater detail but from what i understand raising interest rates risks another recession.

Personally i think giving the BoE control of interest rates was a dumb move, i understand it was done because governments used it as a political tool instead of an economic one but controlling interest rates is a pretty important tools to have in your toolbox, along with tax rate and spending.

 

If people can't afford their mortgages any more then yes, supply would go up, but...
Prices are already flat-lining with low supply, so if supply would go up prices could drop, which brings about the spectre of negative equity.

But of course the housing market doesn't exist in isolation from the rest of the economy and it very quickly gets even more complicated, like for example we have to offset the potential damage of a rate hike to the housing market against the benefits of a rate hike for people saving for retirement and so on.

 

Yes, that is what should happen but that could potentially push us in to deflation which is very bad for heavily indebted governments.
Hence why the BOE has been printing money and artificially pushing up asset prices to try and introduce inflation(growth) into the economy and get rid of debt, arguably a policy that has failed over the last 10-20yrs.

 

Can't help but feeling it's a bit like rearranging the deck chairs on the Titanic. Brexit is going to bite fiercely.

 

Higher interest rates would discourage borrowing while encouraging saving, which one would you rather have if the economy went tits up? A mountain of debt or a mountain of savings?

 

I'm all for it, but it is already too late.

 

+1 no doubt there will be a big crash at some point and we will see capital controls again.

 

The economies been tits up for the last 10 years and will probably remain so into the foreseeable future as we've been depending on private sector debt to fuel our growth since the recession, with the private sector now getting the wobbles and the public sector still refusing to stimulate the economy despite them being able to create free money (being a currency issuer we actually have a magic money tree) there's very few choices left.

 

QE doesn't work though all it's doing is devaluing our currency's purchasing power.