The Bank of England has reduced interest rates again today to 5.25%. The most interesting note that I saw on the release was that there is a high expectation, even by the Bank, that inflation will rise over the next few months; Unless there is a really severe downturn.
However, if you are a mortgage owner with years to yet until the mortgage is paid off, think how well you will be doing. Interest rates are low, meaning your payments are down, meanwhile inflation is relatively high meaning that the overall capital you owe is decreasing quite rapidly.
If you are a pensioner or saver then of course the situation of low-level stagflation is a disaster; but if you are either of those no doubt you vote Tory anyway so Brown and Badger don't care about you.
Think of all those happy people in houses with 100% mortgages benefiting instead. Makes on proud to be British, eh Gordon?
But apparently mortgage interest rates have completely decoupled from the BoE base rate, they are still creeping up, aren't they?
ReplyDeleteThis was to be expected, this rate cut is not for the benefit of the man in the street and printing money not interest rates or wage rise is fuelling inflation. Expect this model to remain in place for the time being as it is now formal government policy in much the same way as it was under Labour in the '70s.
ReplyDeleteYour current poll : None of the above (you didn't include the option)
Tent city, as Wolfie says, here we come.
ReplyDeleteThis is excellent news for me personally, but when I take a step back I can't help feeling that rates should be going up not down, or at least falling more slowly. Then again, perhaps once the effects of the last peak have worked their way through we will be in the middle of an almighty bust...
ReplyDeleteYou are right that in a hyperinflationary economy it is better to be in debt than have savings. That was what sparked the sudden explosion of private property ownership in the late 70s. People were sick and tired of being told by the council where they could live and having to wait until a council house in some rat infested back street became available and be forced to snap it up or be told to return to the back of the queue. The great joys of social housing. They had also come to realise that owning your own property was the first step to getting out of serfdom to the state. House builders were only to keen to meet demand with massive home building projects of cheap houses. At the time inflation was rampant, and wage inflation was rampant too. You could buy a house today and know that your mortgage would be loose change tomorrow. That was where the mantra "get on the housing ladder as soon as you can" came from. In a hyperinflation economy it makes sense. Of course that mantra became used and abused in later years to mean "get on the housing ladder now or you never will" - which is a falsehood.
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