'Strong chance' of UK rates rise AGAIN...!!!

  royalflush 08:48 05 Feb 2007

I see it about to happen again,damn goverment whens it going to stop,anyone think there is a ""recession" on the way...?

click here

  Kate B 09:27 05 Feb 2007

The government doesn't set interest rates, they're set by the Bank of England's Monetary Policy Committee.

  Ho-Lin-Sok 10:17 05 Feb 2007

May not happen, the Bank of England may respond as the inflation rate seems to be higher than forecast and a tweak may be required. As they have only just raised the rate it is also possible that they may take a "wait and see" approach to let it take effect (or not). The only thing that is certain is your taxes will go up.

  Zero G 10:38 05 Feb 2007

Of course interest rates will go higher, the Bank of England wants to stem the high rate of people borrowing and getting into debt. You only have to look in the high street at those shops offering interest free or nothing to pay until Jan2008 offers.

Also putting up interest rates may slow down the housing market and stop those being offered 5, 6 or 7 times their salary from taking on suicidal mortages.

  johndrew 12:10 05 Feb 2007

Much of the current situation results from interest rates being reduced to tiny amounts a couple of years ago. If rates had been maintained at, say, 5% the spending surge in consumer goods and rises in property may not have resulted.

Personally I believe that a stable economy should be stable in all areas. It is good for politicians to be able to point to low interest rates but, as is now apparent again, this can lead to inflation rising. I seem to remember a similar situation in the mid-`70s which eventually led to the problems of the late 70s and early 80s.

However, if rates were set in concrete we would have no need for the Bank of England's Monetary Policy Committee and maybe the Chancellor would be looking for work to bulk his portfolio out!!!

  Kate B 12:16 05 Feb 2007

The economy is very different now to the way it was in the 1970s. We had more manufacturing, wage controls and a willingness to use fiscal (tax) measures to control the economy. Now the economy is a service-based one and has a greater proportion of jobs that can be moved offshore, which means less confidence among employees here who are less inclined to push for inflation-busting pay deals.

Unions have made a bit of a comeback since the dark days of the 1980s but their influence is at present nothing like as strong as it was in the 1970s, so generally upward - and therefore inflationary - pressure on pay is muted.

Despite having a Labour government, there's still a huge reluctance to use fiscal measures to exert any downward pressure on inflation, so that really only leaves interest rates, which are a) a blunt instrument and b) not in the control of the government.

Rates can't possibly be set in concrete as they depend on, among other things, the exchange rate, which again is not controlled by the government but by global factors - the US interest rate is just one of those - and of course by the financial markets.

I suspect rates will go up again because borrowing is quite high, but the last thing the government or the Bank wants is a crash in the housing market, which would be catastrophic, so another quarter-point is probably on the cards but perhaps not this month.

  Brock100 12:17 05 Feb 2007

Great no mortgage and a few bob in savings could not be better.

  Kate B 12:24 05 Feb 2007

Yes, people often overlook savers when discussing interest rates. Low rates have been a problem for people with cash on deposit, though of course you can almost certainly get a better return on your lolly than a bog-standard building society account.

  spuds 13:35 05 Feb 2007

In my area of the UK, house prices seem to be on the downward stroke.Christmas time and prior to that, prices were on a weekly increase. Discounts and stagnant prices in the offering now perhaps!.

  Kate B 14:15 05 Feb 2007

Where do you live, spuds?

  johndrew 14:22 05 Feb 2007

I agree the economy is greatly different to the way it was thirty years ago. One major change has been the reduction in our manufacturing base - the only true producer of wealth.

With large amounts of manufacturing going `offshore` our own workforce have been forced to find employment in areas which do far less for the true health of the nation. Service industries only recycle existing money and do little to increase it. I also agree it is not only manufacturing that has gone offshore, but this does little to enhance job prospects for the existing workforce.

As a result it is possible we shall see larger numbers of skilled people leaving the UK - taking their capital with them - which will leave us more dependent on migrants from elsewhere to support the infrastructure and economy. The question then is how willing will they be to invest in our economy rather than sending their money home?

An interesting point is the current lack of inflationary pressure from Union demands and yet we have `adequate` inflation present. Could it be that if strong Unions were present we would have higher inflation?

My comment on interest rates being `set in concrete` was tongue in cheek and a little poke at the BoE and Chancellor. The chances of all countries subscribing to `fix` their rates is pretty much zero as all have dissimilar problems and currencies; a Utopia this is not.

However, as I have no mortgage or other borrowings, my feelings a quite similar to Brock100!!

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