Thursday 12 April 2018

Will UK interest rates ever rise?

Of course they did, quite recently, back to heady heights of still below 1%.

But the Bank of England, giving its favourite 'guidance' suggested that this was the first move of many and that rates would soon be back to normal (well, over 1%).

Then, as always, reality intervenes. There is some fairly grim economic data out today. Firstly Manufacturing is estimated to have shrunk in the last quarter; then imports have increased as our oil refining capacity slips and exports have grown only a little. Throw in some underwhelming services sector growth and some bad weather and we will be lucky to see much first quarter expansion at all. The economists seem to come in at a consensus of around 0.2% of sclerotic growth.

So the Bank will be left with yet another dilemma in May, to raise or not to raise?

The longer-term issue is that the recovery is eight years old now. Lots of things, like the London Property market,  the Stock Market, the level of consumer debt are all looking like they could easily move down. This is without the panic inducing international political situation interfering. Even the good old oil price is back to $70 - a high level compared to the past couple of years.

But if we were to go into another recession with very low interest rates and a small Government deficit  there are going to be precious few macro levers for the Government to pull to keep the economy going. No doubt most commentators will say this is all the fault of Brexit, but it absolutely is not, these factors would be there in any other situation too, given the length of the bull run.

The saving grace may end up being that the real economy is running with enough spare capacity that slow growth can continue for a long time; even whilst capital owners are stuck for investments and returns.


andrew said...

Time there was a war then.
These people put it better than I could.

Crisp Ackham said...

You can't be a Keynsian during a recession if you haven't been one during the preceding growth period.

Electoral politics encourages asymmetric Keynsianism and if the voters don't like what they've chosen they can always try a populist instead who promises even more largesse.

Charlie said...

“The recovery” is nothing but an asset bubble built on cheap debt. A decade after the crisis, zombie corporations lumber onward, capital is badly misallocated (UK housing market anyone?) and still those in authority think the answer is to carry on with emergency interest rates. I can’t see rates ever going up meaningfully - governments would be completely unable to service their debts.

Electro-Kevin said...

I think the answer to this question is reflected in the cracking 10 year mortgage fixes that are out there now.

I've cut loose from long fixes so confident am I that interest will not shoot up.

Couldn't give a fuck anyway... the kids are all growed up now.

Anonymous said...

... and "Risky Mortgages" are back!

That's even with the new "prudential regulation". Is it deja vu all over again?

CityUnslicker said...

Mortgages cant be that risky, I had to get one recently, wow - it was like the Spanish inquisition.

andrew said...

Box ticking and many invasive questions = the Compliance culture.
Nothing overly wrong with that as long as risk really is reduced.
It does make me wonder what it is that they are not asking.

I got my first house in 87 for 78k and in 89 next door went for 92k and in 92 three doors down went for 58k
... and in 98 sold it for 112k
Point is I visited the ex next door neighbour in Jan and saw that the roof was in a bad state and also it was worth 400k acc to Zoopla.

What will someone in their 30/40s do when they have put down 100k deposit on that house and 3 years later it is wiped out and they are in negative equity and their partner loses his job or leaves etc.

... and who will they blame.

CityUnslicker said...

Andrew - always pay for a full survey for that very reason.

MyLongTimeNoSeeName said...

If you want to know whats coming, read this tweet

This fuckwit has 36 IO mortgages and is being asked how shes going to repay them. Her response is to ask for a lawyer who will help her to sue for mis-selling.

The BoE are fully aware of morons like this and the effect a rate rise will have. They did nothing to prevent this situation infact, they created and encouraged it.

You reap what you sow.

Anonymous said...

If you accept that the UK became a one-way bet on financial services the Govt priority must surely be to support the banks almost come what may. Asset prices crash,major defaults banks and UK becomes even more knackered than we are now.