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

Discussion in 'Serious' started by Zak33, 14 Jul 2017.

  1. Zak33

    Zak33 Staff Staff Administrator

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    Hi all

    I keep reading about the potential for interest rate increases, and while I'm a luck chap who doesn't have a gargantuan mortgage, it still been very nice, thanks v much, to pay so little interest for such a long time.

    But I think I'm right in saying, (along with a multitude of other things such as Brexit), the average investor isn't likely to stick much money in the UK savings market, and that has a small inlfuence on the value of our quids. I think the idea of low rates it to get everyone spending, and keep the economy expanding, but it does now feel we have no where left to go.

    Mark Carney is pretty good at warning waaaay in advance of potential changes but he's due to go home to The United States of Canada soon, and either way, monetary policy is decided by more than one bloke.

    So... my question - do you think that we should see a rate rise? (very slow and steady... not sharp!)
     
  2. Guest-23315

    Guest-23315 Guest

    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.
     
  3. Zak33

    Zak33 Staff Staff Administrator

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    I was thinking maybe... .025% up to .5% in Oct... then .75% in April... then maybe scale the dizzy heights of 1% late 2018?
     
  4. Guest-23315

    Guest-23315 Guest

    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!
     
    Last edited by a moderator: 14 Jul 2017
  5. RedFlames

    RedFlames ...is not a Belgian football team

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    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...
     
  6. Archtronics

    Archtronics Well-Known Member

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    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.
     
  7. Zak33

    Zak33 Staff Staff Administrator

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    The Office for National Stats published, as a good exampel
    good point... my mortgage, while relatively competitive, didn't slip down at the same speed as the rates fell. it's a bit like fuel prices vs crude prices... slow down... fast up.

    However, I do think the BoE Base rate needs a nudge upward.
     
  8. Corky42

    Corky42 What did walle eat for breakfast?

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    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.
     
    Last edited: 14 Jul 2017
  9. Anfield

    Anfield Well-Known Member

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  10. adidan

    adidan Avatar is back out of season.

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    But wouldn't the stark reality be that if rates went up, people default, then there would be more houses on the market?
     
  11. Corky42

    Corky42 What did walle eat for breakfast?

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    @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.
     
    Last edited: 14 Jul 2017
  12. Anfield

    Anfield Well-Known Member

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    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.
     
  13. Archtronics

    Archtronics Well-Known Member

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    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.
     
  14. Zak33

    Zak33 Staff Staff Administrator

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    but those people don't dissolve or move to mars....they still need a home. So rent goes up I guess
     
  15. Nexxo

    Nexxo Bargaining chip

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

    Anfield Well-Known Member

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    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?
     
  17. Nexxo

    Nexxo Bargaining chip

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

    Archtronics Well-Known Member

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    +1 no doubt there will be a big crash at some point and we will see capital controls again.
     
  19. Corky42

    Corky42 What did walle eat for breakfast?

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    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.
     
  20. Archtronics

    Archtronics Well-Known Member

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

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