Oh Dear™: Interest Rates Up!

[n5gooner]

I have my investment properties on a fixed rate for two years changes two weeks ago!!

[DaveB]

Do you really think so, DaveB? That's five hikes in not many more months which would beg the question as to why rates have been pegged for so long.

In any case, I'm sure the government will act decisively by adding DVD players and flash memory cards to the basket of standard goods and removing gas and petrol. There - problem solved!

Three things as far as I can see.

1. A member of the BoE Monetary Policy commitee popped his clogs recently and was replaced by a new member with a stronger view on interest rate rises.

2. Interest rates have been pegged for so long due to the lobbying of the manufacturing sector. They want low rates and a weak pound to make them competitive in Europe and the US. The Economy, by pretty much anyones reckoning, is now booming. Domestic growth hit 2.6% in the second quarter of this year. The driver for keeping rates low has been removed and some correction is now due.

3. This rise wont make any difference. The next one might but by then the continuing rise in house prices and energy costs will offset it. As we head into winter continuing hikes in the cost of energy will continue to drive inflation upwards leading the BoE to chase it with further rate rises. The traditional slow down of the housing market in the run up to Christmass and the new year will allow rates to begin to take effect with 1 or two more between january and april to bring us to 6% and a period of stability.

But what do I know, I'm just another contractor not a financial guru

[Lucifer Box]

That has the ring of truth, DaveB, but I'm sure I recall reading that interest rate rises take up to 2 years to have their full effect on inflation. So, if you are correct, the general consumer could be in for an extended period of pain (me, I'll be loving it).

As Eddie George once said: "using interest rates to control inflation is like trying to pull a brick with a piece of elastic. Nothing happens for ages and then all of a sudden it flies forward and hits you in the face."

[Bagpuss]

Great news my saving have been suffering for far too long. Anyone want to sell their BTL for a fiver?

[Lucifer Box]

Hooray! 15% here we come!

I'd wet my pants with delight if rates hit 15%. Mind you, if inflation starts to race all those consumer debts will be eroded quicker so it must be tempting for the government to try and stoke the fire a bit.

[AtW]

I am not sure there is any manufacturing left in this country to lobby anyone - but they always want low rates - their views are not a factor at all because the only thing that matters is inflation.

[Francko]

Hey AtW, this might be your chance to finally get on the property ladder should property prices go down a bit. Perhaps they might lose 5-10% and then you can take a mortgage on a 15% fixed intererest rate for 25 years. Does it sound good?

[AlfredJPruffock]

Perhaps this rather gloomy outlook for the Global ecoonmy is giving the treasury boys some sleepness nights ..


Business leaders’ confidence slumps
By Lina Saigol in London

Published: August 2 2006 22:02 | Last updated: August 2 2006 22:02

Global business leaders are voicing concerns about deteriorating business conditions for the first time in three years, citing turbulent markets and an expected slowdown in the US.

The Goldman Sachs Confidence Index, which is based on chief executives’ assessments of business conditions and regarded as a leading indicator of corporate sentiment, has declined dramatically in the third quarter after buoyant readings in the past few quarters.


Since May, economists have been concerned that inflationary pressures have been increasing, while the outlook for US growth has deteriorated.

“There has been a change in sentiment. Chief executives appear more concerned about economic uncertainty than any time in recent quarters,” said Sandra Lawson, senior global economist at Goldman Sachs.

The index for the global business outlook has plunged from 71 in the second quarter to 42, well below 50 – the dividing line between executives who think conditions are improving and those who believe they are worsening. The deterioration was starkest in the US, where the index has fallen to 39 – its lowest level since 2002 and well below the four-year average. The decline in Europe has also been steep, plunging from 75 in the second quarter to just 43.

Unlike their European counterparts who favour cross-border deals, US chief executives still prefer domestic transactions. However, the Europeans are now citing political and regulatory intervention as an obstacle to cross-border deals.

“The large cross-border deals that we saw in 2000 are just not there and you have to wonder if that is to do with geo-political factors. People are keeping closer to home,” Mr Filek said.

[wendigo100]

I am not sure there is any manufacturing left in this country to lobby anyone

UK annual growth is quoted today at 3.5%

That is rather high, and part of the reason for the rate rise.

[Lucifer Box]

UK annual growth is quoted today at 3.5%

That is rather high, and part of the reason for the rate rise.

If annual growth is genuinely 3.5% (as opposed to a "government approved" figure), DaveB's prediction of 6% rates next year might not be far off the mark.