Page 2 | To be angered off by the rubbish interest rates?

JimmyMcNulty · 07/03/2009 19:11

Re interest rates being very high very soon, I wouldn't bet on either very high OR very soon, but if I had a nice low fixed rate for only two years I would want to bet on paying a lot more when I came off it - rates will have to go up before people finish feeling the pain of the recession.

CoteDAzur · 07/03/2009 19:12

To encourage spending (of individuals) is one effect they might be hoping for, but as you said, given the uncertain economic environment, it is highly unlikely that anyone will be spurred into a spending spree just because their credit card rate decreased by a teensy bit (if at all) or that they get 0.5% less interest on their savings.

In general, interest rates are raised in boom times to counter inflationary pressures, and lowered during a slowdown to counter deflationary pressures.

At the moment, what BoE is trying to do is to encourage lending - (1) interbank lending and (2) banks' lending to companies a lot of which are going bust because of simple working capital (short term cash) issues turned deadly because they can't get loans from banks.

JazzHands · 07/03/2009 19:15

But haven't they been saying for months that the lowering of interest rates isn't encouraging the banks to lend, to each other or companies any more than to individuals?

And certainly it doesn't seem to be working on that score so why keep at it.

Jimmy I only take my financial predictions from daddyJ

PartOfTheHumphreysGroup · 07/03/2009 19:22

Well my mortgage has gone down by £600 a month so I am rather thrilled

JazzHands · 07/03/2009 19:26

I so know that if I take a tracker instead rates will suddenly go through the roof...

Ah me never mind.

As long as we can afford it I will turn the other cheek.

It's hard to be irritated with your own situation while simultaneously happy for everyone who's payments have reduced.

Why can't we have it both ways

CoteDAzur · 07/03/2009 19:38

DaddyJ - I would be interested to see links to these online sources who claim UK interest rates will be significantly higher "soon".

I haven't seen anything of the sort.

In fact, if you look at the yield curve, it doesn't look like many people anticipate higher rates in the short term at all. And gilt futures only picked up a bit recently because BoE announced its intention of printing money & buying back gilts.

CoteDAzur · 07/03/2009 19:45

JazzHands - Actually, lower interest rates have been encouraging interbank lending.

If you look at LIBOR (London Interbank Lending Rate), you will see that it has consistently decreased pretty much every day over the last couple of months, as BoE cut rates.

JazzHands · 07/03/2009 20:26

Only going by what the BBC etc have said cote. All I have to go on really it's not my area.

It just seems wrong to totally screw over the people who have been careful all these years. Surely there must be a happy medium.

DaddyJ · 07/03/2009 20:42

Jazz, Jimmy and I could be both right:
6/12/18 months of deflation/low interest rates
followed by inflation picking up and interest rates being raised in step.

Cote, I have not got any official sources and 'soon' could indeed be
in the next 12-18 months.

My bet is that we are going to have higher interest rates
together with highish inflation soon (definition of 'soon' - see above)
because that seems to be the only real way out of the crisis.
This article sums up my current belief quite well.

noddyholder · 07/03/2009 20:45

Agree with daddyj.Interest rates and taxes will have to rise

DaddyJ · 07/03/2009 20:48

I am really happy for those on trackers.
Lots of my friends have tracker mortgages, good for them.

I am happy for myself, too.
Missus and I were houseturbating this week
and enjoyed seeing a number of ticks-all-boxes properties
that would have cost about £50k more 18 months ago.

I don't mind not earning anything on my savings
when the thing I want to spend my savings on - a house -
decreases in value on such a scale.

CoteDAzur · 07/03/2009 20:50

DaddyJ - I realize that you would have no official sources, but you say your belief that interest rates will be higher "soon" is based on things you have read, and I would like to know what those are.

Who are these people saying interest rates will be higher soon? I would be very interested to know.

18 months is not "soon", by the way. Not by any definition of the word.

CoteDAzur · 07/03/2009 20:52

And if you take a look at the UK yield curve, you will see that not many people expect interest rates to rise significantly over the coming 12-18 months.

I'm assuming you know what a yield curve is and why it is highly relevant to expectations of future interest rates.

noddyholder · 07/03/2009 20:56

I think we will be looking at a v different picture this time next year.The low interest rates and QE are the last attempt of a desperate man! The govt are making this cash available to encourage lending the very thing that caused all this.

DaddyJ · 07/03/2009 20:56

I did post a link to something that I have read.

Do take the time to read other people's posts please.

CoteDAzur · 07/03/2009 20:57

JazzHands - There was indeed a period when interbank lending dried up and no amount of interest rate cutting would have helped, because banks were failing and the ones with the money just clammed up rather than take the risk of losing their cash to a bank who goes bust.

The market is now reassured that no more banks will be allowed to fail, and interbank lending has restarted again.

If you are interested, here is historical LIBOR. Consistently dropping interbank lending rates are a clear indication that interbank lending has picked up as interest rates have come down.

CoteDAzur · 07/03/2009 21:01

DaddyJ - Where in that article does it say that interest rates will soon rise?

The only sentence that even mentions the term "interest rate" is this one:

'... including improvements in macroeconomic management that have muted the business cycle and led to lower inflation and interest rates.'

noddyholder · 07/03/2009 21:03

Daddyj you are right about your str fund.It is irrelevant that interest rates are low on it because houses are dropping by more.And having cash makes it easy to get a bargain.I unfortunately panicked a bit last october and bought a house I liked but don't love But the fact that i paid so little means I can get rid of it without a loss and join the str brigade again and wait until 2010 and grab a bargain!

DaddyJ · 07/03/2009 21:17

The article does mention inflation, though,
and quite prominently.

Now I would have thought that interest rates
would have to rise if inflation picks up.

Let's see how it goes, noddy!

CoteDAzur · 07/03/2009 21:25

Yeah, well, lots of articles mention 'inflation'. Lots others mention 'interest rates'. What I would like to see is where you get the idea that interest rates will soon rise.

You haven't given a sign that you understand what I repeatedly said re yield curve, so I'm guessing we have reached the limits of your understanding, but I do suggest you think a bit about why 2 year gilts would stand at less than 1.3% if interest rates are so likely to rise soon.

RealityIsMyOnlyDelusion · 07/03/2009 21:28

This reply has been deleted

Message withdrawn

CoteDAzur · 07/03/2009 21:28

Sorry that sounded a bit condescending, which was not my intention.

It is a technical and complicated subject, though and I don't mind explaining myself if necessary.

noonki · 07/03/2009 21:36

YABU to be angered.

the aim of the interest rate drop is to:

help the housing market
Help businesses borrow money so they don't have to make more people redundant
Help prevent people losing their houses as quickly.
Encourage people to spend so that more businesses go bust.

Savers have had a few good years of great interest rates (unpresidented I believe - we had an account at 12%)

You are lucky to be a position to have extra to save. Many people work hard (if they haven't lost their jobs as many people I know of have), spend little and have nothing left to save. If you had lost your job and your home then anger would be justified.

Be angry at those that have spent what they didn't have, at the bankers, the governments and the people that allowed us to get into this position. All understandable.

But being angry because you aren't makng quite as much on your savings as you were last year is a bit much.

Podrick · 07/03/2009 21:36

Savers are indeed being penalised and I think this is wrong as it discourages saving.

However, your rent should be going down - have you renegotiated it?

and the price of your future house is also dropping massively.

If you want to do long term saving it is a great time to invest in the stckmarket as share prices are on the floor.

Overall I suspect that there are more things working in your favour than against you

DaddyJ · 07/03/2009 21:50

Cote, the link is reasonably clear.
Do some reading around the subject if it's not.

Don't worry too much about gilts,
use your common sense.