Interest rate set to soar, warns UK banks chief economist

Run_to_da_hills

Interest rates will rocket as the Bank of England battles to keep inflation under control, its chief economist warned yesterday.

Spencer Dale told insurers the Bank would remain focused on inflation, regardless of the pain that would cause millions of home owners as their mortgage payments soared.

Would this have any effect on Irish Interest rates? Fortunately rates have been very low for some time now.

http://www.dailyexpress.co.uk/posts/view/91700

dresden8

From my meagre economics knowledge as soon as the uptake takes off interest rates will go up. Is there a recovery?

This is nothing new. The Brits have been screwing home-owners for years through interest rates to sort out their economy.

High interest rates were what we never discussed here. As long as the slump continues we can postpone that conversation.

But in 10 to 15 years it won't have gone away you know.

Anybody over 35 will remember interest rates in the teens.

But hey, it's different this time. This expansion is not a bubble. The fundamentals are sound, the Irish have a different relationship with property etc. etc. etc. ad fncking infinitum.

Time Magazine

Christ this thread is tabloid.

The UK is in a recession. Its rates will not "soar" anytime soon.

No, this will have no effect on Irish interest rates. They're set in Germany.

dresden8

The Economist wrote: »

Christ this thread is tabloid.

The UK is in a recession. Its rates will not "soar" anytime soon.

No, this will have no effect on Irish interest rates. They're set in Germany.

Germany has been depressed for year by the absorption of East Germany. If Germany recovers while Ireland is still in recession will our interest rates take off then?

My amateur take on it is that we were soaring while Germany wasn't doing so well. Low interest suited us then.

Will the opposite be true? To combat German inflation (if and when they recover) will our interest rates go up?

Zynks

The problem they have in the UK is that due to the exchange rate drop of sterling, prices have gone up a lot for (imported) consumer goods, food and energy. If BoE takes this "adjustment" inflation into consideration they will not raise the rates, but there are precedents of increases in similar situations in spite of the recession. Ultimately this inflation is not based on a heating economy, so I also doubt there will be an increase.

Zynks

dresden8 wrote: »

Will the opposite be true? To combat German inflation (if and when they recover) will our interest rates go up?

Most probably. If you look at their interest rates in the past, they have had rates just under 10% in the early 70s, 80s, and 90s. Here are the most recent pre-Euro:

Time Magazine

dresden8 wrote: »

Germany has been depressed for year by the absorption of East Germany. If Germany recovers while Ireland is still in recession will our interest rates take off then?

My amateur take on it is that we were soaring while Germany wasn't doing so well. Low interest suited us then.

Will the opposite be true? To combat German inflation (if and when they recover) will our interest rates go up?

They're set in Germany because the European Central Bank is based in Frankfurt. The ECB considers the entire Euro-area when setting rates, not just Germany's. Obviously they consider relative sizes, though.

So yes, our interest rates have been too low of late and yes, it's possible that Germany will rebound before we will and interest rates won't be as perfect as possible.

But this is all necessary for the Euro.

dresden8

The Economist wrote: »

They're set in Germany because the European Central Bank is based in Frankfurt. The ECB considers the entire Euro-area when setting rates, not just Germany's. Obviously they consider relative sizes, though.

So yes, our interest rates have been too low of late and yes, it's possible that Germany will rebound before we will and interest rates won't be as perfect as possible.

But this is all necessary for the Euro.

Mortgage holders might as well enjoy the recession, the recovery could destroy them.

cavedave

What happens if people start to get squeezed four ways? Higher taxes, lower wages and increased mortgage payments and inflation that is not a nice bind to be in.

leninbenjamin

dresden8 wrote: »

Mortgage holders might as well enjoy the recession, the recovery could destroy them.

mortgage holders are also more likely to be earning more money during the recovery.

dresden8

leninbenjamin wrote: »

mortgage holders are also more likely to be earning more money during the recovery.

Not all of them, not by a long shot.

Especially not if the bigger economies in Europe start to recover before Ireland and need their inflation controlled. We "gained" before with low interest rates, higher interest rates would really screw us over.

Fratton Fred

I remember the debacle that was the ERM, when sterling came under attack (Followed by the Franch, Deutchmark etc) and interest rates went up three times in one day. That whole affair probably killed off the UK's involvement in the Euro for the time being.

Despite quantitive easing, UK inflation appears to be under control at the moment, although a lot of imported foods have gone up, but this just encourages people to buy british, which halpes the economy. If inflation does gp up and interest rates are increased, this should in theory increase the value of Sterling as well and even a modest increase in interest rates will do, as there are no high interest rates anywhere at the moment.

This looks a bit like another classic piece of tabloid labour bashing to me.

noodler

Hmm...whether or not it actually happens, surely a sudden rise in interest rates in England could lead to an influx of funds from Ireland and other places in the same way funds left England etc for Ireland when the banks were given complete backing here?

Of course you have to balance that with the fact the British banks aren't backed to the same extent as the Irish ones (guaranteed even). So thats two opposing forces at work regarding money moving from the UK to Ireland?

eamonnm79

I think that some people on this thread are underestimatig the extent of this Depression.
Talk of recovery is optimistic and many years away.

Cowen is right some people are so used to ups they dont get that it is a very real possibility that our children will have a lower living standard than us. Try to imagine yourself in 15 years time telling your kids that you used to be able to go on 2 holidays a year as well as a year in Australia when you finished college. Meanwhile they are going to Rhyl for a week in the summer.:)

Fratton Fred

noodler wrote: »

Hmm...whether or not it actually happens, surely a sudden rise in interest rates in England could lead to an influx of funds from Ireland and other places in the same way funds left England etc for Ireland when the banks were given complete backing here?

Of course you have to balance that with the fact the British banks aren't backed to the same extent as the Irish ones (guaranteed even). So thats two opposing forces at work regarding money moving from the UK to Ireland?

I always thought money tends to go where the interest rates are highest, which I presume is one reason why sterling is so weak.

The UK banks didn't get gaurantees, some got practically nationalised. Technically the RBS has the entire UK economy behind it...about 45cent at current exchange rates

Godge

eamonnm79 wrote: »

I think that some people on this thread are underestimatig the extent of this Depression.
Talk of recovery is optimistic and many years away.

Cowen is right some people are so used to ups they dont get that it is a very real possibility that our children will have a lower living standard than us. Try to imagine yourself in 15 years time telling your kids that you used to be able to go on 2 holidays a year as well as a year in Australia when you finished college. Meanwhile they are going to Rhyl for a week in the summer.:)

Dont disagree that the scenario you paint is a possibility. Until we know what happens the financial sector, it is impossible to predict long-term. If, as I fear, banks revert to traditional conservative lending policies as in the past, your scenario becomes more and more likely, as there is no credit to drive investment, house purchase etc. We don't bounce back and the whole world stagnates or worse stagflates as the debt is inflated away.

Fratton Fred

Godge wrote: »

Dont disagree that the scenario you paint is a possibility. Until we know what happens the financial sector, it is impossible to predict long-term. If, as I fear, banks revert to traditional conservative lending policies as in the past, your scenario becomes more and more likely, as there is no credit to drive investment, house purchase etc. We don't bounce back and the whole world stagnates or worse stagflates as the debt is inflated away.

I think the biggest delay is normal service being resumed will be the level of negative equity.

We might get to a point where people simply cannot afford to sell their home and lots of people are sitting tight just paying off debt until prices naturally get back to where they were.

If this happens quickly then we are no better off than we were before TBH,

dresden8

eamonnm79 wrote: »

I think that some people on this thread are underestimatig the extent of this Depression.
Talk of recovery is optimistic and many years away.

Cowen is right some people are so used to ups they dont get that it is a very real possibility that our children will have a lower living standard than us. Try to imagine yourself in 15 years time telling your kids that you used to be able to go on 2 holidays a year as well as a year in Australia when you finished college. Meanwhile they are going to Rhyl for a week in the summer.:)

I think this is eventually where I wanted to end up. The recession/depression is not a correction. It is going to hurt real people in real ways. Economic arguments are one thing, people getting screwed up the ass are another.

Enjoy your Keynsian bullcrap.

Real people are hurting.

Fratton Fred

dresden8 wrote: »

I think this is eventually where I wanted to end up. The recession/depression is not a correction. It is going to hurt real people in real ways. Economic arguments are one thing, people getting screwed up the ass are another.

Enjoy your Keynsian bullcrap.

Real people are hurting.

It's not a correction, but a correction was desperately needed.

The bubble burst. It would have been a lot better if it was not allowed to get so big in the first place, or if it was let down slowly, but Fannie May etc was the pin that well and truly burst a bubble.