Comments: MPC voted unanimously for 5.5%

Looks fairly clear from that that they are expecting to raise rates again in the next few months. Sterling has barely moved on the news, so it looks like another rate hike is priced in.

Posted by Minh at May 23, 2007 10:06 AM

Dear David,
In a 2007 MPC discussion paper
(http://www.bankofengland.co.uk/publications/externalmpcpapers/extmpcpaper0017.pdf),
David Blanchflower and co-authors provide an excellent discussion of the impact of migration on the UK economy. They argue that migration has not only put downward pressure on inflation but it has also lowered the natural rate of unemployment. Under the circumstances, it might not be that surprising that David Blanchflower felt comfortable enough (and rightly so) to agree with the interest rate increase.
Many thanks
Costas

Posted by Costas Milas at May 23, 2007 11:24 AM

David Blanchflower is probably aware that Steve Nickell rather got himself boxed in on a view of a lower interest rate than the majority, and therefore seemed to have less influence on subsequent decisions.

It is reasonably clear that any other decision than a rise would have spooked the markets and the only question was how much. In the circumstances, if you believe that interest rates are already higher than needed, you either play it tactically and go for the smallest possible increase or insist on your view that rates should be cut. The relevant question is how much harm an unnecessary interest rate rise does to the real economy when it is demanded by the markets.

Posted by paulbiv at May 23, 2007 12:36 PM

Central projections are just that.

It seems that price decreases have not come in as expected and that they may follow through hence only the 0.25 IR increase.

Its simply a matter of time before the MPC realises that it needs to do much more than wait.

Posted by Hitesh Damani at May 23, 2007 01:43 PM

David,
On a different - but related - issue. The long awaited house price slump in the US has materialized even amidst an increase in transactions.
"Sales of new US homes rose a higher than expected 16.2 per cent in April, but only on prices which fell a record 11 per cent, their fastest decline in 37 years, according to a government report today."
http://business.timesonline.co.uk/tol/business/economics/article1837088.ece

I do not think house prices will be "sticky downwards" this time as too many overstretched buyers are in the US and UK.
regards


Posted by Michele at May 24, 2007 07:55 PM

You may not quite have understood the point about "sticky downwards". It refers to existing homeowners, not housebuilders cutting prices to stimulate sales, a tactic that appears to have worked. The US looks to be coming through its housing weakness.

Posted by David Smith at May 24, 2007 10:35 PM

David
Thank you for your answer.
The UK market is cleared by BTL investors today (if you may have not noticed) with owners-occupiers nicely priced out long ago.
You will be surprised by finding that the behavious of BTLers does resemble that of the developers (most of BTLers are also developers).
Japan and Germany too are coming out of their housing weakness(juts please do not tell them)
Best

Posted by Michele at May 25, 2007 05:53 PM