Interest rates in the UK

[Kriz1]

http://www.dailymail.co.uk/news/article-1375572/Mortgages-soar-rates-quadruple-year-warns-Bank-England.html

[chris]

I am not an economist and don't claim to be, but surely there are factors that you have control over and factors that you don't. Inflation is usually about price increases and spending. Raising interest rates makes it more expensive to borrow and more attractive to save, thereby taking money out of the economy. However, if you take things down to basic levels, food essentials and basics needed for construction are all being driven by 2 world economies which are creating the demand for them..India and China. If grain goes up because China is buying most of it, then your loaf of bread is going to cost more, there is nothing other than stopping buying it, that you can do about it. It is the same with most raw materials, they are going up because of world demand, not simply UK demand.
Increasing VAT is inflationary in itself, but that point seems to be always lost on the UK government. Increasing interest rates will push up the cost of a mortgage and has been used to cool down overheating house prices, BUT are they overheating? Not to my knowledge.
If the UK Government is wetting its knickers over 'rampant inflation', perhaps they should have a word with Japan who are tackling deflation?

[JulieC]

Inflation rate unexpectedly dropped last month I just heard on the news. Food prices dropped, would have been better still but for petrol. That will make the raise in interest rates which was almost inevitable less likely than it was. The economists on TV were saying the raise in interest rates expected at the Bank of Englands next meeting in May would now not happen till August or even later.

[Kriz1]

I'm wonder how much longer they'll hold off bring VAT to the US..we now have shops closing down all over on the Cape..T G I Fridays closed a few weeks ago..the Mall rates went up and everyone is leaving..if places are not sold they are getting knocked down and greened over it weird seeing places where you once had dinner now grass..

[Susie]

I am not an economist and don't claim to be, but surely there are factors that you have control over and factors that you don't. Inflation is usually about price increases and spending. Raising interest rates makes it more expensive to borrow and more attractive to save, thereby taking money out of the economy. However, if you take things down to basic levels, food essentials and basics needed for construction are all being driven by 2 world economies which are creating the demand for them..India and China. If grain goes up because China is buying most of it, then your loaf of bread is going to cost more, there is nothing other than stopping buying it, that you can do about it. It is the same with most raw materials, they are going up because of world demand, not simply UK demand.
Increasing VAT is inflationary in itself, but that point seems to be always lost on the UK government. Increasing interest rates will push up the cost of a mortgage and has been used to cool down overheating house prices, BUT are they overheating? Not to my knowledge.
If the UK Government is wetting its knickers over 'rampant inflation', perhaps they should have a word with Japan who are tackling deflation?


excellent post Chris :)

[Susie]

What a darn mess the whole world is in, what a difference a few years make. My best year ever was the year before 9/11 since then it seems there was a big hike and even bigger fall after that

[Munish]

The article is just quoting the opinion of one member, Andrew Sentance. He always pushes for interest rate rises every month (has been pretty much since last year) but he is always out voted by the rest of the MPC. He is doing the whole media thing, probably to try and sway the media and indirectly persuade the rest of the committee.

I think interest rate rises are due soon, but probably not to the extent being claimed. The problem is inflation is skewed by the VAT rise this year so that has to be taken into account. Even interest rate do quadriple that only takes us to 2%.

In reality the falls in interest only benefit those with pre-existing variable rate loans. The difference between the base rates and new loans/mortgages to retail customer is as wide as it has been for quite a few years. The banks are raking it in at the moment.

My main worry is interest rate rise will result in rises of interest by banks (when they never really fell to take into account central bank rates).