Bank of England Base rate & other news

[Paddy]

The GBP interest rates are the only thing propping up the failed economy and pound. We should cut our losses, re-join the single market and customs union and join the Euro.

[Protagoras]

Can there be anyone left who thinks that the BoE rate setting is really independent of Government?

[willendure]

About bloody time. Except its not really god news its just confirmation that the economy is slowing down. Glad I mostly invested in commodities for the inflation wave

[Protagoras]

About bloody time. Except it's not really god news it's just confirmation that the economy is slowing down. Glad I mostly invested in commodities for the inflation wave

While interest rates are not particularly effective against inflation, government could act to reduce the cost of living ...
- Reducing energy bills is within Government's gift via effective regulation, market reform, changing subsidy arrangements.
- Water companies should be forced to reduce bills in proportion to the pollution they create, and not simply increase bills because they failed to invest.

It seems to me that Government and BoE simply have no interest in trying to control inflation, yet 'cost of living' appears increasingly to be a major concern for voters.

[willendure]

While interest rates are not particularly effective against inflation, government could act to reduce the cost of living ...
- Reducing energy bills is within Government's gift via effective regulation, market reform, changing subsidy arrangements.
- Water companies should be forced to reduce bills in proportion to the pollution they create, and not simply increase bills because they failed to invest.

It seems to me that Government and BoE simply have no interest in trying to control inflation, yet 'cost of living' appears increasingly to be a major concern for voters.

I think inflation post-covid was triggered by big companies with pricing power driving up prices to make up for the lost ground during covid. This view is also supported by the rise in corporate profits seen since covid.

However, the next and currently emerging round of inflation seems to be driven in the US and UK by borrowing at the short end. Debt is being monitized through shorter term bill issuance with banks as the purchasers of the debt. This is providing collateral in money markets, and driving a liquidity surge, which in turn is evolving into inflation.

The situation in Europe is different with rates already cut, economy slowing, but lower debt levels.

Definitely things could be better in the UK around the cost of our bills, but I just don't think that is the real driver here.

[Protagoras]

I think inflation post-covid was triggered by big companies with pricing power driving up prices to make up for the lost ground during covid. This view is also supported by the rise in corporate profits seen since covid.

However, the next and currently emerging round of inflation seems to be driven in the US and UK by borrowing at the short end. Debt is being monitized through shorter term bill issuance with banks as the purchasers of the debt. This is providing collateral in money markets, and driving a liquidity surge, which in turn is evolving into inflation.

The situation in Europe is different with rates already cut, economy slowing, but lower debt levels.

Definitely things could be better in the UK around the cost of our bills, but I just don't think that is the real driver here.

Certainly agree that companies are leveraging their pricing power to extract more profit. And where increasing prices is difficult, shrinkflation is also applied. I struggle to reconcile the FTSE at 9000-plus with the state of the economy, especially reports that people are saving more and spending less (where they can). At the shops I notice more tyre-kickers than people at the checkouts.

For liquidity to drive inflation, presumably the new money has to be spent .. I wonder what it's being spent on? It's not obvious that investment in the means of production is high, I suppose the property bubble is ongoing, but do you have any insight into where this money is spent?

Looking at inflation from a personal perspective, I see main drivers as food, energy and insurance costs. All these are projected further to increase to which I think council tax is another likely contender for personal inflation pain.

[jamesbrown]

Certainly agree that companies are leveraging their pricing power to extract more profit. And where increasing prices is difficult, shrinkflation is also applied. I struggle to reconcile the FTSE at 9000-plus with the state of the economy, especially reports that people are saving more and spending less (where they can). At the shops I notice more tyre-kickers than people at the checkouts.

For liquidity to drive inflation, presumably the new money has to be spent .. I wonder what it's being spent on? It's not obvious that investment in the means of production is high, I suppose the property bubble is ongoing, but do you have any insight into where this money is spent?

Looking at inflation from a personal perspective, I see main drivers as food, energy and insurance costs. All these are projected further to increase to which I think council tax is another likely contender for personal inflation pain.

The FTSE 100 isn't a very UK-centric index, it's full of old dogs with mostly overseas earnings, something like 80%+.

[willendure]

I struggle to reconcile the FTSE at 9000-plus with the state of the economy, especially reports that people are saving more and spending less (where they can).

For liquidity to drive inflation, presumably the new money has to be spent .. I wonder what it's being spent on? It's not obvious that investment in the means of production is high, I suppose the property bubble is ongoing, but do you have any insight into where this money is spent?

Inflation or the prospect of inflation causes money to move into real assets. Gold is an obvious one, but shares are another. So the inflation can drive the stock market higher in the short term. The real economy is not doing well, but the stock market is detached from reality somewhat because ordinary people are not investors much compared with rich people. Although add to that automatic pension contributions and there is a steady flow of "dumb" money into shares.

The new money is being created as monitisation of government debt if it is shorter term bills purchased by banks. So its money the government is spending into the economy. HS2 for example. Or raising our defense spending from 2.5% to 5% of GDP. I would say the UK is currently in a very Keynesian phase, with government spending high and crowding out industry. Notice that there are not many contracts around, but one area where there do seem to be contracts is in roles requiring security clearance - government work.