Inflation

I was due to remortgage this summer but got an offer last autumn valid for 6 months because I thought something like this might happen, so sat on it until it became clear that paying the early redemption penalty would be overall cheaper than waiting and taking a mortgage at the higher rate. I'm glad I did it, as rates are now well above that break even point.

 

We've about 18 months left on our 5 year fix but it has a huge early redemption fee so we're just going to overpay the maximum allowed (10% per annum) and we've a decision on whether we choose to move or we remortgage.

Given how weak the economy is and the pending recession, I actually think the BoE will continue to err on the cautious side and consider that inflation for a temporary period is better than pushing interest rates back to late 90's levels. I could well be wrong and it's very much my own personal view, but I'm not expecting interest rates to go beyond 2.5%.

 

Our long term energy plans have been non existent for 10 years. We are plowing crops into the ground as no one is there to pick them. NHS run into the ground. No affordable housing. Boris will be having a **** and doing a line...

 

I'm not a financial expert by the widest gap imaginable but I have read a couple of articles stating that even 2.5% is lower than interest rates have been for 85% of the time since the Bank of England was founded in 1694.. And much of the period when interest rates were lower than 2.5 was during WW2 when there was a cap. With that in mind it doesn't seem reasonable to me to expect them to stay so low.

https://www.ft.com/content/e7829146-620f-434b-951c-176cb7036f06

 

You're right that interest rates haven't tended to be this low. It's maybe worth considering that for the majority of that time, the government set interest rates, it was the Blair government that gave BoE independence.

If this inflationary spike were driven by a boom in consumer spend, i'd very much agree with you, but it isn't and raising interest rates aggressively would have the double whammy of sapping consumer confidence extremely quickly and harming economic output even more while having virtually zero effect on controlling inflation.

If we get where interest rates are pushing comfortably beyond 2.5% in the next 2-3 years, we'll have some very serious problems given all the other factors at play.

 

Bank of England is separate from the government & has been since the Blair days. If we don't match US & EU rates the pound will plummet, leading to greater cost push inflation on imports. As we produce very little food & energy that would be another kick in the teeth to the poorest people in our country.

The fact we have no plan to get out of this mess, just a lot of sabre rattling with the EU over a treaty Johnson signed, the lack of migrant workers to pick crops & no plans on energy may be more of a worry. We've got the right passport colour back though. Great...

 

Isn't it the case that if we don't match interest rates with other currencies the pound will lose value which will increase the cost of imports and mean inflation will become even more ridiculous pushing the cost of living beyond the means of the majority?

 

The pound to dollar level is extremely weak as it is. And let's be honest, our government policy on brexit and overseas trade doesn't follow through to minimising the cost of imports by adding all the additional friction.

The BoE seem to think that its an exceptional period of inflation but likely to be short lived (though I don't think it will be as short lived as they expect).

We've also the level of indebted households and highly indebted businesses. The problem is that so many of the indicators that you'd typically judge the economy are quite contradictory at present.

 

Up we go again, 9.4%

 

The consequences of world wide decisions to shut economies down continue. Its hardly a suprise, and as ever the poorest will suffer the most.

 

BoE now forecasting 13% inflation this year, interest rates up 0.5%

 

check out this -as a ex mineworker on mps- https://www.mps-pension.org.uk/news/2022/07/2022-pension-increase - this is from a question i asked about future increase.---inflation -rpi 11.8% ---cpi which imho a rip off by this crap government want us to accept always less. lets see if they pay us the full amount -last time mps was told to sell assets to cover pension increase- not bad when they take 50% of profits then tax us at 20% of pension increase so we get 30% of any profit -we are all in it together i dont think

 

Just caught up with some of the detail and it's looking really grim.

The BOE now predicting a 15 month recession from the latter part of this year. 13.3% projection of peak inflation and the continued admission that the basis of inflation is out of their hands.

The bigger worry though is a political one. Cruella Braverman was doing the media rounds this morning (supporting Truss now, as most tory MP's are as they fall over themselves to try and bag a cabinet job) and starting to position blame on the BoE for the high levels of inflation and suggesting a review should be undertaken.

One of the best decisions in the last 30 years was making the BoE independent and in charge of rate setting. It should frighten everyone greatly if a far right populist set of idealogues continued their crusade to take hold of every lever of power and reduced the BoE's powers or it's remit.