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Sky news today - interest rates

4 replies

EssexMamisoa · 11/04/2023 11:38

Not sure whether to post in here or property…

Sky news reporting today that interest rates are expected to fall to previous lows once inflation is under control.

Thoughts?

https://news.sky.com/story/ultra-low-interest-rates-set-to-return-imf-says-12854853

UK to see return of ultra-low interest rates, IMF says

A report found that the hike in inflation sparked by the pandemic is likely to be a blip rather than a permanent shift in the global financial climate.

https://news.sky.com/story/ultra-low-interest-rates-set-to-return-imf-says-12854853

OP posts:
xogossipgirlxo · 11/04/2023 14:06

I'm wondering how it's going to affect rent.
Crude oil and gas are cheaper, and we can't really see it.

GasPanic · 11/04/2023 15:32

The problem with inflation forecasting is that it is awful.

If you look at the BOE inflation forecasting over the past few years it is absolutely woeful. They persistently seem to underestimate how large it will be and how (in)significant the effects of IR rises are, which is kind of scary considering their primary remit is to keep inflation at 2%. They are staggeringly bad at fulfilling this. Certainly when you consider the inflation rate at the moment the UK base rate should actually be higher than the US, when in fact it is lower. My opinion is that the UK is raising rates begrudgingly, at the absolute minimum it has to to prevent trashing the currency against the USD. We are pretty much tied to the Fed atm.

So I don't believe the BOE, much less the IMF in its ability to forecast inflation.

I think rates will come down in the medium term, but considering we are normally have rates above the US (maybe 1%+) and at the moment our inflation is much higher than the US yet we are approx. 1%- then I would be surprised to see UK rates coming down in the immediate future (more likely go up by the minimum rise for a few months yet). The trigger for the UK rates to start fall is probably the US going into recession.

I think if the Fed do another 25bps at the beginning of May, another 25bps for the UK is pretty much nailed on, although of course no one can predict with any certainty exactly what is going to happen.

butterflycatcher · 14/04/2023 10:12

These assumptions are all of course based on things playing out in a certain way too. But if the last few years have taught us anything, it is to expect the unexpected. They could go down, the could go up and they could find a medium ground, only the future will tell. I'd say take headlines with this with a pinch of salt and prepare for all scenarios.

caringcarer · 14/04/2023 10:47

It would certainly be welcome if interest rates dropped. I don't think they will ever drop back to rates we were getting before but base rate could drop back to 3. Meaning we could get interest rates of 3.75 back on the table. It would probably take a year to 18 months to work through the system. That's why I told DS who is buying a house ATM to only fix for 2 years.

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