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

[LargeDeviation]

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!

ARGH. Bailey has made a 'statement' saying nothing at all except wait for November.

What's the point of getting everyone excited about a statement, giving the markets some hope of sanity, and then doing nothing at all?

He may be the most incompetent governor the BoE has ever had. Coupled with the fiscal insanity of Kwarteng, we may as well give up. I think I will give up hope of any recovery and buy some dollars with my meagre and hard-earned savings.

Lol, talk is cheap, action costs. He'd be in remiss if he didn't try the talk option first.

It's a game of poker. If the market want's to see his cards they are basically going to have to cough up.

Bbc have reported some lenders have suspended new mortgages - guess whilst they figure out what to do

what a bloody mess

He is probably under huge pressure from the Govt to do nothing, obviously unofficially but they will of course will talk.

£ went up based on the BOE statement, then fell back again when Bailey did nothing.

So now the markets have lost confidence in Govt and BoE... :(

Great for a HPC though.

Op do you think investment in American stuff will help?

@TheRubyRedshoes I don't know much about investments.

All I know is that the pound is in the toilet and Bailey is too scared to actually raise rates even in line with the market expectations, let alone exceed them, which is what is needed.

Every time Bailey fails to meet market expectations without telling us why, the pound will plummet. So I am thinking about converting my pounds to dollars (my savings are small enough that I can probably do this at a standard holiday FX broker or I think on Revolut or TransferWise).

By the way Huw Pill the BoE's chief economist has come out today and said there will be a 'significant monetary response' in November - but every time they have made such a statement, they haven't followed through.

Bumping as the next MPC decision is Thursday this week, and the expectations are for retreating to a 0.5% increase.

Already there is talk of Silvana Tenreyro voting for no increase at all - and even saying there should be rate cuts next year! Inflation is still over 10%, far beyond the 2% target.

The BoE and the government need to get rid of dithering Bailey, get rid of Silvana Tenreeyro/Swati Dhingra, and make a sound money voice like Dave Ramsden, Catherine Mann or Jonathan Haskell the governor.

OP, coming out with statements like this makes you seem completely divorced from reality.

The calculation that the MPC is making is that high interest rates would be more damaging to the UK economy than high inflation, and I tend to think they're not wrong.

Already we're seeing average house prices falling (implying more home repossessions) and this will only get worse with higher inflation. You might be perfectly financially secure just now OP, although a lot of people, including a lot of home owners are not.

Are you hoping for the UK economy to collapse OP? You seem to be completely blind to the risks posed by high interest rates.

I find it difficult to take you seriously based on your first statement in my quote.

Are you pissed the interest rate is low because you save money in the bank? That's a you problem. Saving money in banks is a waste of time unless you need quick access. It will and never has kept up with inflation where as investments usually will. Do you think millionaires keep their fortunes in the bank vault?...

Inflation is high but it won't be sustained, driven primarily by increased energy costs it will fall throughout next year. Probably not lower than 5% but no way near the 10-11% it is currently.

Can I ask what your financial qualifications are?

@TheWhalrus I believe the long-term harm from inflation is worse than the short-term hit to the economy from normalising interest rates. In any case, unemployment is very low and there are labour shortages, and most outstanding mortgages are fixed for at least 2 years so interest rate rises can be absorbed across society as a whole. There will be individual hard cases but rising inflation causes pretty much everyone to lose out. Once inflation is at target rates can slowly come down again.

In addition, the BoE's primary remit is to get inflation (medium to long term) to 2%. Anything about wider economic impacts is secondary. The wider economic difficulties should be mitigated by politicians using fiscal policy, rather than the BoE feeling they are unable to use monetary policy.

In any case, at least one MPC member (Catherine Mann) seems to agree with me. Earlier in the thread I linked to a speech she made with associated historical data showing that acting fast on raising rates in an inflationary crisis causes less pain overall. She voted for a 75bps rise at the last meeting, and was (shamefully) the only one to do so.

Catherine Mann should become Governor of the BoE.

It varies massively by area. We bought in December 2008. House was £80,000, we had a £10,000 deposit. Prices crashed. We sold in 2019, for a loss as house prices hadn't recovered in that area.

Not disagreeing with you overall, just that it wasn't 'short stints' everywhere.

In September last year I raised on this thread the danger of the Bank of England going too slowly and steadily with their rate rises, with the obvious risk of inflation bedding in.

It has proved to be the case.

If Bailey had taken decisive action and raised rates to 4% in September last year together with a statement saying he would do whatever it took to combat inflation regardless of anything else, gilt yields would not be over 6% today and mortgage rates would now be far cheaper than they are today. Instead he dithered and fretted about the wider economy.

Bailey should be fired along with most of the rest of the MPC.

I look forward to those who dismissed such ideas on this and other threads admitting their mistakes, but doubt they will.

Or another way of looking at this: mortgage rates would have become disastrous for many people then rather than now.

@TheWhalrus They would have been less disastrous then, and for fewer people. Additionally acting fast and decisively would have significantly reduced wider secondary inflation.

The problem is, the rate increases haven't taken hold yet because so many are on fixed rates. The real impact won't be seen for a while yet.

Indeed. Over 90% of mortgages taken out since 2019 have been on fixed rates and over 1 million fixed rate mortgages are due to expire this year, most at an interest rate of under 2%.

When people talk about interest rate increases not working, they seem to ignore the delay due to fixed rate mortgages.

So our entire means of bringing inflation down resorts to hammering a small proportion of the mortgage owning public and leaving those with money (I’m looking at you, pensioners) spend, spend, spending. It’s not working.

I have a mortgage but I don't like pensioner bashing.

If you want to assign blame, start with the war in Ukraine and the QE undertaken during the pandemic.

Really? I'd start with Brexit and Trussonomics myself

We're entitled to different views but none of these factors are the fault of pensioners.

I think pp was making the point that it's mortgage holders who are being worst hit while pensioners with high disposable incomes (no mortgage/private pension) do well from high interest rates, spebd more so inflation rises.
Not pensioner bashing per sec, although it is annoying that pensioners are largely being shielded from CoL pain in a way that working adults and other people receiving benefits aren't.

it is annoying that pensioners are largely being shielded from CoL
Not they aren't, divisive bollocks.

In what ways aren't they being shielded? High interest rates benefit those with private pensions and savings, they get a winter fuel allowance, they got a CoL benefit if they are entitled to winter fuel allowance (which is based on age not income).

Those of us with mortgages just have to find the extra several hundred pounds a month to pay the interest increase, plus higher fuel bills etc. The government "help" is to tell banks to let us extend our mortgage term, with an impact on our credit rating. Doesn't seem an equal playing field.