Thursday, August 02, 2007
Rate held at 5.75% - no surprise
Posted by David Smith at 12:30 PM
Category: Thoughts and responses

Given the amount of egg that would have been dripping off faces had the monetary policy committee hiked today, it was as well it left Bank rate unchanged at 5.75%. There was no statement, as is customary, merely a nod in the direction of next week's inflation report, to be published on Wednesday.

Comments

Hi David,

Well,

Not particularly sensible, but there we are...

Looks like 6.5 % IR's by year end then...

Regards..

Posted by: Pete Balchin, Solicitor at August 2, 2007 02:14 PM

Hi David,

Well,

Not particularly sensible, but there we are...

Looks like 6.5 % IR's by year end then...

Regards..

Posted by: Pete Balchin, Solicitor at August 2, 2007 02:14 PM

Anything's possible, but I hope you haven't bet your mortgage on it. Three late-cycle interest rate hikes in four months has to be highly unlikely.

Posted by: David Smith at August 2, 2007 02:52 PM

6.5% interest rates by year end Pete?
For your sake, I hope you are a better solicitor than economic forecaster.
4 meetings left. Cant see 3 x 25bp hikes, or a combination of, for the rest of this year, or for this hiking cycle in general.

Posted by: Simon at August 2, 2007 02:59 PM

Hi David,

True,

Depends on inflation though. They are really stoking up problems at the BOE I fear, but as they are as independent as the length of the Chancellor's foot (to Quote Table Talk by John Seldon when he said Equity varied with the length of the chancellor's foot, with apologies), I think this cat and mouse approach may really harm the economy, that's what I am worried about and wage and price inflation being very much alive and well, increasing and much more than the RPI tell us it is. Also there is the problem with a run on the pound due to China pulling on the bond markets, to think about.

On the other hand...

David, I think that there may be much in what you and Kate Barker advise in a wait and see philosophy, so it may be that two more rises may do this year leaving it at 6.25%. This is particularly the case as we have an unelected PM who may have to go to the polls this Autumn... That may be why the financial institutions have been pricing in 6.25% for some time (although admittedly recently they appear to be under estimating the rate movements)..

That's the beauty of the dismal science I suppose... completely unpredictable!!!

Posted by: Pete Balchin, Solicitor at August 2, 2007 03:44 PM

And for interesting information, here are the comments from those blogging on the Times Article about holding rates , it seems there are a lot of bears out there, and you nkow what they say about taxi drivers and economics...?:

"....More political disgrace from the so called independent MPC.
Rates should have risen today at least .5 of a point and that is probably not enough. It is as ever, far too little far too late. They can't easily catch up now (predictable) things have run away with them and they are just pandering to Mc.Sporran. They won't pay the ultimate bill with thier gold plated pensions -we will.

Ronald Swift, Chelmsford, Essex.,

Lost their bottle again then! $78 Oil. House price inflation at 2 year high. Mortgage withdrawal continues unchecked. Oh - sorry forgot. Mr and Mrs Smith have stopped spending the rent money on beer an fags so high street spending may well slow down folks.

Paul, London, Canada

The BoE has repeatedly underestimated pricing pressures, particularly asset inflation, within the UK. They seem more interested in trying to keep the consumer spending than concentrating on their only true mandate which is to control inflation. The BoE should recognise that it's previous mismanagement of interest rates requires there to now be a period of painful correction. The interest rate needs to be much higher than it currently is even allowing for the effect this will have on short term sterling appreciation.

MGS, Stoke, UK

Posted by: Pete Balchin, Solicitor at August 2, 2007 04:05 PM

Am I missing something here? CPI is at 2.4% and falling, GDP is at 3% - not far above the 2.5% that's thought to be the long term capacity (and it's averaged 2.5% over the past five years), average earnings growth is at 3.5% and falling... why the big panic over interest rates?

Posted by: Ed B at August 2, 2007 04:21 PM

I have to say, between ourselves, that we get a much better class of comment on this site than on my own newspaper's website.

In response to Ed -- this is a bit like Keynes's beauty contest; it doesn't matter what we think but it does matter what the MPC thinks. Here, the crucial thing is not inflation now but inflation over the next 2-3 years, and I suspect they will keep their "upside risks to inflation" warning in place with next week's inflation report.

Posted by: David Smith at August 2, 2007 04:53 PM

Hi David,

Yes I am inclined to agree, I find your site quite informative!

However, I still can't dismiss the bloggers on other sites we know...even if they do rave sometimes, they live in a different experience often to me anyway, which is why for example when I go to Court I always ask other's views first so that I can consider the weaknesses as well as strengths of my case, and they did do that survey about taxi drivers didn't they?.....


Regards...

Posted by: Pete Balchin, Solicitor at August 2, 2007 05:43 PM
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