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AIBU?

to believe interest rates should be at least 4% already, and rising fast?

213 replies

LargeDeviation · 05/09/2022 19:34

1.75% base rate is pathetic in the face of double digit inflation.

The Bank of England has been much slower than the Fed in raising rates, and this is one of the main reasons why sterling is weakening - not the only one of course. Gas and oil are priced in dollars and energy prices are the dominant contributor to inflation, so we should strengthen the pound wherever we can.

The BoE has been far too timid to raise rates going back to Mark Carney. He had several opportunites to raise rates and even gave unemployment thresholds at which he would do it, but when unemployment went far lower he invariably lost his nerve.

Andrew Bailey is even worse. He should have cut QE and started raising rates as soon as it was clear that vaccines were working in early 2021 - or at least when it was clear that omicron was mild. It was clear far before the war in Ukraine that the post-vaccine boom would cause at least some significant inflation. Even after the war started, he has been so timid in acting! Tiny 0.25% and 0.5% raises.

Yes, raising rates will reduce cashflow, reduce house prices, and even possibly cause negative equity to those on high LTV variable mortgages, or those remortgaging soon. And yes it will reduce credit available to households and businesses, which would be difficult.

However with inflation you need to act fast and act big to get people to believe you are serious about taming it, otherwise expectations take hold and it becomes embedded. It is easy to cut rates again a bit afterwards.

If any of the MPC are reading: stop quivering, stop with the Lilliputian raises, and remember that your mandate isn't about the broader economy but to keep inflation under control!

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AIBU

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jimmyjammy001 · 22/09/2022 15:28

I completely agree, we have had over 10 years of near zero interest rates, if people have borrowed to the max and over leveraged themselves on property then I don't see why everyone else should have to suffer as a result. The reason house prices are so high is because some people just borrow as much they can with out a thought about what they will do if interest rates go up and there's those that do that hold off and wait or buy something cheaper, its tough luck if you get caught out high and dry due to interest rates rising, it had to happen sooner or later.

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Mrsorganmorgan · 22/09/2022 15:28

I remember interest ratez of 17%, back inthe 80s. Thought we'd have to sell our house. We went with a very obscure loan company. My daughter used to call him Uncle Gwyn, because he visited often!

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oiltrader · 22/09/2022 15:44

time to get the popcorn at the ready. will be a lot of weeping in the next 6 months while debt junkies go cold turkey

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YouSirNeighMmmm · 22/09/2022 15:54

oiltrader · 22/09/2022 15:44

time to get the popcorn at the ready. will be a lot of weeping in the next 6 months while debt junkies go cold turkey

There are plenty of people who are not "debt junkies" but instead are exceptionally cautious, yet because of house prices and their age will be screwed.

The purpose of high interest rates is to punish borrowers and / or reduce inflation.

Inflation is reduced by ensuring people have less spare money to waste to bid up the prices of things.

If the inflation is not caused by people bidding up the price of things, but rather by the cost of necessities going through the roof, then higher IRs does little to reduce inflation and is solely about punishing borrowers.

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oiltrader · 22/09/2022 15:55

YouSirNeighMmmm · 22/09/2022 15:54

There are plenty of people who are not "debt junkies" but instead are exceptionally cautious, yet because of house prices and their age will be screwed.

The purpose of high interest rates is to punish borrowers and / or reduce inflation.

Inflation is reduced by ensuring people have less spare money to waste to bid up the prices of things.

If the inflation is not caused by people bidding up the price of things, but rather by the cost of necessities going through the roof, then higher IRs does little to reduce inflation and is solely about punishing borrowers.

if they are cautious then they will have no debt and be ok

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YouSirNeighMmmm · 22/09/2022 15:57

jimmyjammy001 · 22/09/2022 15:28

I completely agree, we have had over 10 years of near zero interest rates, if people have borrowed to the max and over leveraged themselves on property then I don't see why everyone else should have to suffer as a result. The reason house prices are so high is because some people just borrow as much they can with out a thought about what they will do if interest rates go up and there's those that do that hold off and wait or buy something cheaper, its tough luck if you get caught out high and dry due to interest rates rising, it had to happen sooner or later.

You are effectively saying "anyone who has bought since about 2005 is an absolute muppet, unless they had a massive deposit. Clearly stainable borrowing is circa 80% of 2005 house prices, so anyone who has come of age since then should have put their life on hold indefinitely and wait for the inevitable correction that will come sometime. They should have continued doing this even 15 years after the credit crunch when we had 15 years of evidence that the government and BoE would do everything in their power to prop up the house of cards".

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walkingonsunshinekat · 22/09/2022 15:59

Very weird policies atm.

BoE trying to reduce money supply, demand and hence inflation

but the Government intent on increasing it with tax cuts and 150 billion in borrowing.

Remember we voted Tory in 2019 because Corbyns 54 billion, mostly on infrastructure, was deemed unaffordable = unbridled socialism

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roarfeckingroarr · 22/09/2022 16:01

walkingonsunshinekat · 22/09/2022 15:59

Very weird policies atm.

BoE trying to reduce money supply, demand and hence inflation

but the Government intent on increasing it with tax cuts and 150 billion in borrowing.

Remember we voted Tory in 2019 because Corbyns 54 billion, mostly on infrastructure, was deemed unaffordable = unbridled socialism

And because Corbyn was an anti semitic politics student

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YouSirNeighMmmm · 22/09/2022 16:03

oiltrader · 22/09/2022 15:55

if they are cautious then they will have no debt and be ok

You are trolling.

It is not "cautious" to rent indefinitely in the UK. It is setting yourself up for big rent rises every year, no security of tenure, no stability for your family and a retirement of poverty as your rent is higher than your pension.

Younger people were caught between a rock and a hard place facing a choice between buying ridiculously overpriced property and getting screwed renting.

I do not believe that you cannot see this, so you are choosing not to.

FWIW (and without going into details) we are in a position that most people on this site would think is a pretty good one taken at face value, and I am all but certain that we will be fine (I think we could cope with 20% interest rates for 5 years to give you an idea). But even with relatively small debt, no unsecured debt and savings I am still a touch worried.

Obviously I understand that there are absolute fools on very average wages who think they deserve a new car every two years and a new kitchen every 5 and an extension because their friend got one done and those people deserve everything they get.

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YouSirNeighMmmm · 22/09/2022 16:05

walkingonsunshinekat · 22/09/2022 15:59

Very weird policies atm.

BoE trying to reduce money supply, demand and hence inflation

but the Government intent on increasing it with tax cuts and 150 billion in borrowing.

Remember we voted Tory in 2019 because Corbyns 54 billion, mostly on infrastructure, was deemed unaffordable = unbridled socialism

Why is that strange?

Give rich people a tax cut - suits rich people

Raise interest rates so you can repossess the houses of the poor - suits rich people who can buy them cheap and then let them back to the person who was repossessed (ideally with government paying the rent because the rich under the Tories live socialism, so long as it is only for people who don;t need it).

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towelhammer · 22/09/2022 16:08

if people have borrowed to the max and over leveraged themselves on property then I don't see why everyone else should have to suffer as a result

This is bullshit though as young people often face higher rents vs a maxed out mortgage. Add in wage stagnation & little chance to make money on their savings.

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walkingonsunshinekat · 22/09/2022 16:08

roarfeckingroarr · 22/09/2022 16:01

And because Corbyn was an anti semitic politics student

Considering the endemic racism in the UK and elsewhere, i doubt too many voters cared much about antisemitism, if they even knew what it meant.

The point is, 54 billion was considered completely unaffordable 3 years ago but 150 billion for a very short term fix is considered fiscally responsible by the Tories.

What happens in 18 months when gas is still at very high levels? borrow another 150 billion?
Or in 6 months for business, another 30 billion?

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GertrudePerkinsPaperyThing · 22/09/2022 16:10

Some people are really horrible and gleeful, aren’t they?

Interest rate rises generally benefit those who already have money, and are disastrous for those who have less.

Plus it’s all very well to say “oh I bought my house X years ago and paid down the mortgage so I’m fine” in your 40s, 50s, whatever - what if you’re in your 20s and 30 s and just managed to get a property? Which stretches you but you can just manage?

Are the people who were previously in that situation but now aren’t somehow more virtuous just because they’re older? In 2006/ 2007 you could get 110% mortgages, plus a loan to do it up on top!

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GertrudePerkinsPaperyThing · 22/09/2022 16:12

It doesn’t make you a “debt junkie” just because you’ve needed to borrow money - to get a house, to make it habitable or whatever ffs

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MarshaBradyo · 22/09/2022 16:12

Anti semitism did harm Labour - hence Starmer’s drive to overturn the accusations

On borrowing the global environment is very different to Corbyn’s run. There’s no point in harking back. He lost by a huge margin and the electorate didn’t connect with him. Labour had to get it together after that defeat without going back to the past.

They are getting there but better to look forward than back.

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towelhammer · 22/09/2022 16:16

@GertrudePerkinsPaperyThing not too mention the younger generations won't see anything like the same equity growth.

Honestly I think the young people should revolt, any who can should emigrate for better opportunities elsewhere. A friend is a GP & she was saying they cannot attract younger ones. They either want to be a&e docs or are moving abroad.

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GertrudePerkinsPaperyThing · 22/09/2022 16:27

@towelhammer

GertrudePerkinsPaperyThing not too mention the younger generations won't see anything like the same equity growth.

Exactly. People are incredibly self centred on here sometimes.

Im not exactly in either of the groups I’ve mentioned btw, I’m just talking generally.

I have had to buy again after divorce, from an EA exh, and don’t think I can be held as a “debt junkie” for having to take out a new mortgage on my own, obviously much bigger than the one we had together - and with one salary rather than two to pay it!

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maryso · 22/09/2022 16:49

Inflation is 9.8% and typically normal real interest rates are 3-5% above inflation.

Therefore the bank rate at 2.25% is negative at over 7%. Lenders are paying borrowers to borrow at a phenomenal rate. The BoE cannot fall behind the Fed, and the Fed is only showing "willing" because of the suppression of rates over the last 14 years. 2.25% is not normal, it is substantially negative.

Asset prices are sliding and housing is treated as an asset will also behave the same way no matter how much wailing and beating of breasts there is. One person['s loss is another's gain; plunging house prices will benefit at least as many people as those who elbowed their way ahead in last 14 years.

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towelhammer · 22/09/2022 16:59

I don't know how prices can plunge, too many are relying on them for pension/retirement/helping dc etc.

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DeadHouseBounce · 22/09/2022 17:06

maryso · 22/09/2022 16:49

Inflation is 9.8% and typically normal real interest rates are 3-5% above inflation.

Therefore the bank rate at 2.25% is negative at over 7%. Lenders are paying borrowers to borrow at a phenomenal rate. The BoE cannot fall behind the Fed, and the Fed is only showing "willing" because of the suppression of rates over the last 14 years. 2.25% is not normal, it is substantially negative.

Asset prices are sliding and housing is treated as an asset will also behave the same way no matter how much wailing and beating of breasts there is. One person['s loss is another's gain; plunging house prices will benefit at least as many people as those who elbowed their way ahead in last 14 years.

Well said, a property price crash will be the best thing to happen in the UK in many a year! Will there be doorstep clapping to celebrate I wonder?

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Snoozer11 · 22/09/2022 17:07

towelhammer · 22/09/2022 16:59

I don't know how prices can plunge, too many are relying on them for pension/retirement/helping dc etc.

Too many people are paying extortionate amounts in rent to house themselves and their families in properties in terrible conditon. They might have savings and a relatively well paid career, but they stand no chance of buying their own home.

An investment carries risk. If people have invested in property to fund their lifestyle or that of their adult kids, then too bad if it doesn't pay off. They took the risk and will have to live with it, if prices plunge.

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Abhannmor · 22/09/2022 17:08

roarfeckingroarr · 22/09/2022 16:01

And because Corbyn was an anti semitic politics student

Is he fuck. Think of a better reason for voting Tory. Don't be ashamed of it and blame others.

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Walkden · 22/09/2022 17:18

"Without being an economist, it is quite easy to see that many professional economists are stupid"

A rather arrogant statement. The case for Interest rates is not as simple as you make out despite parroting the statements made about embedded inflation.

Generally high interest rates have been used in the path to cool excessive growth and reduce spending whilst encouraging saving.

It is far from clear that reducing spending and purchasing power is that desirable during a cost of living crises as it risks damaging the economy by deepening and lengthening the recession we are already in especially as brexit has also caused an economic shock.

The main driver now seems to be keeping pace with the fed as sterling is deprecating for a variety of reasons. If we recall black Wednesday the interest were super high to support the exchange rate which was always doomed to failure as money in the currency markets dwarfed the boe reserves.

As thatcher said herself if you try and buck the market the market will buck you. A fine line must be trodden between supporting sterling and maintaing the economic outlook which could also cause sterling to depreciate.

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FreddyHG · 22/09/2022 17:25

GertrudePerkinsPaperyThing · 22/09/2022 16:12

It doesn’t make you a “debt junkie” just because you’ve needed to borrow money - to get a house, to make it habitable or whatever ffs

It does if you can't afford historically normal interest rates. The debt junkies need a dose of reality to stop them bidding up the price of assets based on peak borrowing capacity. Just because a bank will lend you 5x joint salary over 40 years doesn't mean you need to take it.

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FreddyHG · 22/09/2022 17:27

DeadHouseBounce · 22/09/2022 17:06

Well said, a property price crash will be the best thing to happen in the UK in many a year! Will there be doorstep clapping to celebrate I wonder?

I will be cheering away. And I brought recentlyish affordable housing should be celebrated.

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