GBP in crisis, interest rates increase to save pound

[AtW]

3% will be the new normal.

You've heard it on here first...

Interest on mortgages will be about the same as it was when rates were 5-6% - bigger margin for banks.

Interest on savings will be still next to zero...

[eek]

We still have the deflation crisis to hit before the inflation stagflation future....

[AtW]

The only deflating thing will be wages...

[chopper]

Typically interest rates are used to cool an overheating economy, low interest rates to create corporate investment and consumption, high interest rates to reduce consumption and stop inflation going out of control.

Right now we have a scenario where inflation isn't being caused by an overheating economy, but rather a weak pound. The LAST thing the economy needs is higher interest rates to curb investment as that will tip the economy over the edge. The inflationary pressures of a weak pound will resolve themselves within a year.

Higher interest rates will improve sterling - it is doing well against USD, at a high point since September 2016 (other than one random day in May) but not so well against EUR which suggests it isn't a strengthening pound but a weakening dollar. Improved sterling reduces inflation, but runs the risk that businesses start hoarding cash instead of investing (and employing).

The weak pound is, of course, caused by the Tory wet dream of a Hard Brexit.