Reply to: The Official DOOM: biggest interest rate rise in 27 years

[MarillionFan]

This is a pain . Going to have to move money around in well over a decade. Had an interest only offset 0.48 over base for years on £425k . Never had to pay it off as had money in Zopa at 5% plus other houses

Zopa closed. Interest rates going up. Going to have to reduce that mortgage now. Pffffff

[jamesbrown]

Why are you banging on about QE?

What are you whining about exactly?

[d000hg]

Why are you banging on about QE?

[jamesbrown]

Problem is what's good at a long-term or a short-term statistical level is often not good for lots and lots of families. Finding you now can't pay your mortgage as well as not being able to pay your bills or buy food would potentially push a huge number into destitution or spark a new wave of generational deprivation. As I understand it, the banking crisis in the US may now largely be forgotten at a national level but there are hundreds of towns which are basically crippled from it (one source of a alot of Trump support IIRC) and don't really have a way back.

I have no idea how you balance what needs to be done with protecting people from it

I was careful to say deflation, rather than crash, I would prefer a deflation. But we'll probably get a crash.

Central banks (and gov'ts who encouraged them) will have a lot to answer for when the dust has settled. They were "doing their best", but history is littered with well-meaning disasters. The post-2008 recession and the pandemic should've been allowed to run their course, yes with low interest rates and yes with as much gov't borrowing as the markets would support to help the poorest, but not with QE, and not with the helicopter money from furlough and other stupid "something must be done" schemes. They should've spent less, but spent more on UC and other targeted benefits.

[d000hg]

High interest is good, we need a good house price deflation

Problem is what's good at a long-term or a short-term statistical level is often not good for lots and lots of families. Finding you now can't pay your mortgage as well as not being able to pay your bills or buy food would potentially push a huge number into destitution or spark a new wave of generational deprivation. As I understand it, the banking crisis in the US may now largely be forgotten at a national level but there are hundreds of towns which are basically crippled from it (one source of a alot of Trump support IIRC) and don't really have a way back.

I have no idea how you balance what needs to be done with protecting people from it

[jamesbrown]

"let's pay everyone's wages for months while they do nothing" was rather radical.
I'm just amazed that .5% would BE the biggest raise in almost 3 decades, but then in my lifetime it must have been largely downhill - 10% when I got my first saving account, 4% when I got my first house, 0% soon after and virtually 0% ever since.

I remember thinking high interest rates were wonderful as a cash-rich 6 year old, I'd take my book to the Halifax and the numbers just kept going up and up for doing nothing

Yes, QE was a radical policy (the thing that facilitated massive gov't borrowing), but it wasn't the BoE's idea, they just followed the Fed who borrowed the idea from the BoJ.

High interest is good, we need a good house price deflation, but it doesn't help much unless inflation is also low and the BoE is probably correct (in the ballpark sense) that it will subside next year, or the year after, and they will almost certainly revert to ultra loose policy in advance of that. They talk about symmetric policy goals, but recent history shows that they're rather quicker to loosen policy than tighten it.

[d000hg]

Because they are small c conservative. Even when a radical outcome smacks them in the face, they tend to "look through" it

"let's pay everyone's wages for months while they do nothing" was rather radical.
I'm just amazed that .5% would BE the biggest raise in almost 3 decades, but then in my lifetime it must have been largely downhill - 10% when I got my first saving account, 4% when I got my first house, 0% soon after and virtually 0% ever since.

I remember thinking high interest rates were wonderful as a cash-rich 6 year old, I'd take my book to the Halifax and the numbers just kept going up and up for doing nothing

[dsc]

I doubt you'll see a big drop in house prices in the UK even at very high interest rates as there simply isn't enough property in the UK overall. Prices might stop rising for a while, people mortgage'd up to the brim will suffer potentially failing to pay off their mortgages and less people will be able to even get a mortgage, but that is the whole idea of increasing interest rates in the first place - to stop people spending like crazy and save up money instead (interest rates going up means gov bonds % going up as well).

Bigger issue is govs trying to help people by offering all sorts of cash programs as this will only drive inflation higher. (same with pay driving inflation higher) This is also why high inflation is so sh*te, you just have to take it on the chin and hope to survive.

[ladymuck]

All those plebs who got cheap mortgages on low rates, when such a rate is entirely abnormal, will lead to plenty cheapness in the housing market soon and then - woo! - another house price boom.

[Gibbon]

High interest rates, among other things, could hit confidence and raise mortgage costs. This could impact house prices. No one wants that. We don't want the plebs getting on the housing ladder.

But would it make it easier to afford with high rates.

Approximate calc:

100K 25 yr @ 3% = @ £472 p/m 75K 25 yr @ 6% = @ £475 p/m

[dsc]

Core inflation which excludes food / energy is still high at 5.8%, yes it's dropping from it's max in April, but it's the highest it's been for a very long time (over 50 years?).

[Whorty]

As a lot of the inflation is driven by the fuel hikes, they're probably hoping prices will stabilise and start to reduce thus bringing down inflation. Timing will be key, but we'll only know with hindsight if they got it right or not.

[jamesbrown]

No idea why they are going so slow

Because they are small c conservative. Even when a radical outcome smacks them in the face, they tend to "look through" it

[dsc]

50 whole basis points? Wake me up when they do 100 basis points.

No idea why they are going so slow, we should be easily at 4-5% for it to have any effect on inflation, bear in mind it takes 3-4 quarters to see the effects in the first place.

As for recession, it's probably the only sure way to battle double digit inflation, which is why you should never really allow it get so high. Wait till Jan 2023 when energy prices are going to go through the roof again and pretty much everything will be impacted. This is a sh*t storm of monumental proportions.

[Whorty]

Bank of Canada recently did 100 bips taking rates to 2.5%

US is going to do 75 bips next week taking rates to 2.5%.

UK which has the highest inflation now at 9.4%, is only doing 50, taking rates to just 1.75%.

Why are they dragging their feet?

High interest rates, among other things, could hit confidence and raise mortgage costs. This could impact house prices. No one wants that. We don't want the plebs getting on the housing ladder.