Wednesday, November 15, 2006
A calming inflation report from the Bank
Posted by David Smith at 02:00 PM
Category: Thoughts and responses

The Bank of England's November inflation report has been published and quite relaxed it is, while as usual stressing the uncertainties. If interest rates rise a little further, peaking at 5.2% (5.25% in Bank Rate terms) inflation will be a little under the 2% target in two years' time. If they stay where they are, inflation will be fractionally above the target. The case for raising rates further, pending new evidence, is not strong.


So David, looks like we have reached the status quo on which way the next MPC move will be. The Bank stated that the risks to growth and inflation are broadly balanced now. If that is the case, there seems to be some great opportunities in the short sterling futures market, which are still pricing in hikes. Where would you be putting your money at the moment, if you really were the trader you secretly yearn to be !?!?

Posted by: Simon Woolfson at November 15, 2006 04:42 PM

No, no desire to join you in front of the trading screens. As for rates, I'll stick for the moment to what I wrote last Sunday: "If it works, and pay settlements remain benign, we may get away with 5% as the peak."

Posted by: David Smith at November 15, 2006 06:22 PM

HI david,

Just had to write again, is it only me that has noticed a pattern starting to reveal itself as how the MPC and SMPC are playing the markets as "bad and good cops". between these convienient quarterly intervals of "rate decisions". which benign fundamentals have changed in the last two weeks that have changed the interest rate outlook from rising further? some more fudged inflation data prior to the very last christmas shopping binge?
Increasing governernment legislation to curb reckless lending practices? Lets try to be real please, there is just no abatement of M4 broad money there? well isn't that dilution of pound sterling? rates will rise when the pound starts falling, the housing market will be just an innocent bystander hurt in the process.


Arik Schickendantz

Posted by: arik schickendantz at November 17, 2006 12:06 AM

What's changed is that inflation on all measures has come in lower than expected, earnings growth remains very benign and the Bank has published an inflation report showing a quicker return to target than it previously expected. M4 growth does not represent a dilution of the pound sterling, in fact it is hard to tell what it is. There's a nice chart in the Bank's inflation report (1.6 p12) showing the poor relationship between M4 and money GDP.

Posted by: David Smith at November 17, 2006 01:57 PM

have too say i am only a "poor bus driver here in n.ireland"
lets put it this way from a man on the street so too speak
house prices here have went through the roof young people (both working and with substantial deposit) can not afford the cheapest ex council house.
once the foundations (ie first time buyers) of the housing market have been knocked out, the rest will then collapse quiet quickly

agree that it is the government rallying spending for xmas

why up interest rates so recently if every thing is fine
watch crude oil if it goes up or another war starts
that will be the catalyst

Posted by: graham at November 18, 2006 09:06 AM

Graham, isnt it interesting that when oil went up, there was little affect shown in the CPI figures, yet when it came down, all of a sudden it was instantly reflected in the CPI figures.

strange that!

Posted by: Kev M at November 24, 2006 01:27 PM

That's incorrect. The rise in CPI inflation from 1.1% to 2.5% was largely an oil effect.

Posted by: David Smith at November 25, 2006 10:31 AM

So interest rates did go up for the third time
no shock here,
the housing market here in Northern Ireland went up at least 30% last year house prices here are now higher than the average house price in England the first time that has happened.
but we are not on high english wages
(but we our at the head of the market)

greedy estate agents are still putting house prices up here!
(house prices in N.ireland historical have never went down)
admittedly planning laws and peace have forced prices up but...

I predict another interest rate rise and eventually later in the year after another rate rise house prices will tumble

Posted by: graham at January 20, 2007 10:04 AM