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Post by bracknellboy on Nov 3, 2022 14:37:05 GMT
I'm in some doubts about the BOE interest rate rise. While it is the 'classic' response to rising inflation, isn't the current situation rather different from the norm? This is not a debt driven demand led bout of inflation but mostly extraordinary events supply side driven inflation. The very things that inflation are hitting most is itself going to already hit available discretionary spending for very many. It seems in these circumstances to be a very blunt and broad instrument, where the downside side effects could far outweigh the intended benefits.
Still, I don't have any qualifications in economics.
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benaj
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Post by benaj on Nov 3, 2022 15:19:39 GMT
Is it the right one? 0.75% rise to 3%? I heard those who are renting are complaining landlords raising rent by 25%! No idea how some people can afford expensive one bed flat and some agents have completely so many new deals in the last 60 days.
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Post by Deleted on Nov 3, 2022 15:38:55 GMT
I'm in some doubts about the BOE interest rate rise. While it is the 'classic' response to rising inflation, isn't the current situation rather different from the norm? This is not a debt driven demand led bout of inflation but mostly extraordinary events supply side driven inflation. The very things that inflation are hitting most is itself going to already hit available discretionary spending for very many. It seems in these circumstances to be a very blunt and broad instrument, where the downside side effects could far outweigh the intended benefits. Still, I don't have any qualifications in economics. The problem is that a lot of the supply crunch - food, energy inflation etc - is imported. The UK cannot feed or heat/power itself without these imports (and yes, these imports are more expensive in most currencies, but the weak GBP makes it even worse). So every drop in the GBP goes DIRECTLY into even higher food, energy and raw material costs, and these costs also feed into higher overheads and hence prices for most other industries as well. And then you have inflation becoming 'embedded' domestically by wage demands to match inflation, and various metrics such as the pension triple lock, rail prices matching inflation etc etc Yes, its a blunt policy, but the UK is now suffering from a serious case of chickens coming home to roost. Decades worth of chickens, in fact. We've seen how quickly the pound plummeted after the mini-budget, ie how little faith the markets have left in the GBP as 'sound money'. It is absolutely critical that this faith is restored, especially as banks like the US Fed are tightening aggressively. If the BoE is seen to get left behind, or the government is suspected of abandoning fiscal prudence, then it is bye-bye GBP, and hello even more nasty imported food and energy inflation.
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jonno
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nil satis nisi optimum
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Post by jonno on Nov 3, 2022 15:55:39 GMT
I'm in some doubts about the BOE interest rate rise. While it is the 'classic' response to rising inflation, isn't the current situation rather different from the norm? This is not a debt driven demand led bout of inflation but mostly extraordinary events supply side driven inflation. The very things that inflation are hitting most is itself going to already hit available discretionary spending for very many. It seems in these circumstances to be a very blunt and broad instrument, where the downside side effects could far outweigh the intended benefits. Still, I don't have any qualifications in economics. I do have a degree in economics, and I do agree with a lot of your post. One point you do miss is exchange rates and the only rational that the BoE can possibly be focusing on is trying to protect the value of the £ particularly vis a vis the $. This will limit the importation of more inflation, but whether this justifies the further pain that people will feel, particularly in the short to medium term is debatable.
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michaelc
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Post by michaelc on Nov 3, 2022 16:26:51 GMT
Slightly aside, BoE is now predicting the "longest ever recession". Isn't a public announcement like that partially self fulfilling? Good on Andrew Bailey as usual. www.bbc.co.uk/news/business-63471725 |
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trevor
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Post by trevor on Nov 3, 2022 17:34:39 GMT
The base rate was needed but I think not a lot more is required. Inflation is being driven by gas and food increases that is beyond the control of the uk government. The large extra payments to power our homes, mortgages and food will choke off discretionary spending without further base rate increases.
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pikestaff
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Post by pikestaff on Nov 3, 2022 17:57:13 GMT
I'm in some doubts about the BOE interest rate rise. While it is the 'classic' response to rising inflation, isn't the current situation rather different from the norm? This is not a debt driven demand led bout of inflation but mostly extraordinary events supply side driven inflation. The very things that inflation are hitting most is itself going to already hit available discretionary spending for very many. It seems in these circumstances to be a very blunt and broad instrument, where the downside side effects could far outweigh the intended benefits. Still, I don't have any qualifications in economics. The problem is that a lot of the supply crunch - food, energy inflation etc - is imported. The UK cannot feed or heat/power itself without these imports (and yes, these imports are more expensive in most currencies, but the weak GBP makes it even worse). So every drop in the GBP goes DIRECTLY into even higher food, energy and raw material costs, and these costs also feed into higher overheads and hence prices for most other industries as well. And then you have inflation becoming 'embedded' domestically by wage demands to match inflation, and various metrics such as the pension triple lock, rail prices matching inflation etc etc Yes, its a blunt policy, but the UK is now suffering from a serious case of chickens coming home to roost. Decades worth of chickens, in fact. We've seen how quickly the pound plummeted after the mini-budget, ie how little faith the markets have left in the GBP as 'sound money'. It is absolutely critical that this faith is restored, especially as banks like the US Fed are tightening aggressively. If the BoE is seen to get left behind, or the government is suspected of abandoning fiscal prudence, then it is bye-bye GBP, and hello even more nasty imported food and energy inflation. Indeed. The BoE has a really tough job restoring faith in the present circumstances, and the markets have not reacted well to today's announcement. www.theguardian.com/business/live/2022/nov/03/bank-of-england-interest-rates-inflation-pound-recession-ftse-stock-market-business-live#block-6363f41d8f0842be36fefc7d
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Post by bracknellboy on Nov 3, 2022 18:51:34 GMT
I'm in some doubts about the BOE interest rate rise. While it is the 'classic' response to rising inflation, isn't the current situation rather different from the norm? This is not a debt driven demand led bout of inflation but mostly extraordinary events supply side driven inflation. The very things that inflation are hitting most is itself going to already hit available discretionary spending for very many. It seems in these circumstances to be a very blunt and broad instrument, where the downside side effects could far outweigh the intended benefits. Still, I don't have any qualifications in economics. I do have a degree in economics, and I do agree with a lot of your post. O ne point you do miss is exchange rates and the only rational that the BoE can possibly be focusing on is trying to protect the value of the £ particularly vis a vis the $. This will limit the importation of more inflation, but whether this justifies the further pain that people will feel, particularly in the short to medium term is debatable. Which is a very fair and valid point. But if the markets think the medicine could backfire, then it could have the opposite effect. Which is in fact what appears to have happened (at least for the moment, the reaction may be different after 24 hours).
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Post by Deleted on Nov 3, 2022 19:27:08 GMT
Which is a very fair and valid point. But if the markets think the medicine could backfire, then it could have the opposite effect. Which is in fact what appears to have happened (at least for the moment, the reaction may be different after 24 hours). The market reaction has been a combination of the US Federal Reserve sounding more hawkish than expected about future rate rises yesterday, and the Bank of England sounding more dovish than expected about future rate rises today. So the short-term response - a USD strengthening and a GBP weakening as the market reprices to these new future expectations.
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registerme
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Post by registerme on Nov 3, 2022 19:46:12 GMT
The BoE also recently (a day or two ago?) announced the end of quantitative easing. They'll sell the bonds to the market, probably at a loss. The Treasury will bear that loss. Which in theory means more money will need to be borrowed to fill the hole which will increase yields on existing bonds and push rates on later bond offerings higher. That having been said... QE is new, and quite what the ramifications are remains to be seen. EDIT: I should add that I'm not handing this down on tablets carved in stone! I'm more than happy to read others' thoughts on QE, how it will be unwound, and what the ramifications will be  . |
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Post by bracknellboy on Nov 3, 2022 21:03:48 GMT
Which is a very fair and valid point. But if the markets think the medicine could backfire, then it could have the opposite effect. Which is in fact what appears to have happened (at least for the moment, the reaction may be different after 24 hours). The market reaction has been a combination of the US Federal Reserve sounding more hawkish than expected about future rate rises yesterday, and the Bank of England sounding more dovish than expected about future rate rises today. So the short-term response - a USD strengthening and a GBP weakening as the market reprices to these new future expectations. I'm also only just catching up on the news today: I suspect a good part of the response is also a more gloomily than expected prognosis from BoE re. recession expectations, rather than the rate rise per se.
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Post by mostlywrong on Nov 4, 2022 10:18:19 GMT
Slightly aside, BoE is now predicting the "longest ever recession". Isn't a public announcement like that partially self fulfilling? Good on Andrew Bailey as usual. www.bbc.co.uk/news/business-63471725But that is what we have had since the summer, and it has been non-stop, led by the BBC and ITV.
If the powers-that-be scare enough people into hoarding their dosh, then we will have a recession: QED.
I fear for the High Street (in all its guises). I think that small shops, restaurants and pubs are already having a rough time. And on my travels, I note that a lot of country pubs appear to be closed for 2-3 days a week.
On the other hand, there are lots of cars and lorries speeding around at all hours of the day and night as if fuel prices had not budged from their pre-Covid levels.
There are interesting times ahead...
MW
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Post by mostlywrong on Nov 4, 2022 10:33:58 GMT
The BoE also recently (a day or two ago?) announced the end of quantitative easing. They'll sell the bonds to the market, probably at a loss. The Treasury will bear that loss. Which in theory means more money will need to be borrowed to fill the hole which will increase yields on existing bonds and push rates on later bond offerings higher. That having been said... QE is new, and quite what the ramifications are remains to be seen. EDIT: I should add that I'm not handing this down on tablets carved in stone! I'm more than happy to read others' thoughts on QE, how it will be unwound, and what the ramifications will be . When QE started, I found a book that described the nightmare of the Weimar Republik in the 1920s and how that all went wrong.
It was heavy going but it left me with a distinct feeling of unease that our Lords and Masters appeared to following the same path. I will try and find it.
Subsequently, and a couple of years ago, Junior and I were discussing QE and I decided that I (we) didn't know enough about it.
We pulled out the Monopoly cash, created the UK economy on the table and tried to work out just how QE worked.
We failed. Or rather, I decided that it had to be a Tommy Cooper operation "just like that...". That comment went straight over the head of Junior and we then got distracted by Tommy Cooper clips.
Maybe the topic of QE and its unwinding should be covered by a separate thread entitled "Just like That..."?
MW
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