Inflation

[GoSeigen]

But 3.9% is not 2%.
Mind you, I would not be surprised if there is a rate cut next year given the govt no doubt will be pressing the (independent) bank in that direction but I will be amazed if there is an increase from here.

V8

No, it's not. But with such a steep falling slope, the bank rate ought to be falling, so as not to overshoot the target.

TJH

The market is expecting interest rates to fall still (at least in the US). Rates usually don't fall until the market expects them to keep going up.

GS

[GoSeigen]

In 6 months' time, inflation will not be the primary concern and we will be in cutting mode.

I'd like to take the other side of that bet please.

GS

[Lootman]

But generally not as high as in the UK.

And at least in the US at that time you could deduct a lot of things for tax purposes, such as sales tax, property/council tax and even gambling losses!

And wages were higher in the US, Canada, Australia etc. I had various older members of my family who emigrated to all three.

There is no way around it: pre-Thatcher taxes were far too high and it was ruining the prosperity of the UK.

I agree that income tax rates were sub-optimal (above the point in the laffer curve where tax revenue would be maximised). However your concentration on the top rates of income tax distorts the taxation picture as only a relatively small part of the population was affected by them. The total tax burden as a percentage of GDP (which includes both direct and indirect taxes) provides a better picture.

But it was "only a relatively small part of the population" because it was so hard back then to become wealthy.

After the tax cuts the UK created dozens of billionaires and millions of millionaires. The cuts democratised wealth so that an average person had a decent shot at getting rich.

And the UK ceased to be an economic basketcase.

[vand]

Getting off topic ,but it wasn't just taxes -- there was wholesale reform to push back on the unions and an embracing of privatised/market economy solutions.

[dealtn]

With the full effect of previous rate increases yet to be factored in I would be surprised if the Bank of England didn't under shoot their inflation target

Why are you predicting a 50bp rise in rates then?

[GoSeigen]

With the full effect of previous rate increases yet to be factored in I would be surprised if the Bank of England didn't under shoot their inflation target

Why are you predicting a 50bp rise in rates then?

It's Tedx. He was being sarcastic/wry.

GS

[dealtn]

Why are you predicting a 50bp rise in rates then?

It's Tedx. He was being sarcastic/wry.

GS

A shame as this is one of the few serious boards left here. There are other places for that.

[Nimrod103]

It's Tedx. He was being sarcastic/wry.

GS

A shame as this is one of the few serious boards left here. There are other places for that.

The serious point here is how much of a lag between interest rate rise and effect is appropriate nowadays? Back in the 80s and 90s it was said to be 6 months to a year. And that was with mostly floating rate mortgages. Now with so many fixed rate mortgages only gradually ending, the lag must be longer, surely?
If so, there is a severe risk of the BoE over tightening, and that we will be heading into a downturn?

[Nimrod103]

A shame as this is one of the few serious boards left here. There are other places for that.

The serious point here is how much of a lag between interest rate rise and effect is appropriate nowadays? Back in the 80s and 90s it was said to be 6 months to a year. And that was with mostly floating rate mortgages. Now with so many fixed rate mortgages only gradually ending, the lag must be longer, surely?
If so, there is a severe risk of the BoE over tightening, and that we will be heading into a downturn?

PS this is very relevant as I read this morning the 3 month growth to September has now been revised down to -0.1% from zero. It looks like we are in recession.

[Tedx]

It's Tedx. He was being sarcastic/wry.

GS

A shame as this is one of the few serious boards left here. There are other places for that.

Oh dry your eyes. My general point was serious enough.

[dealtn]

A shame as this is one of the few serious boards left here. There are other places for that.

Oh dry your eyes. My general point was serious enough.

Which is what?

You think interest rates are heading up while inflation is falling? Or something else.

[Tedx]

I think inflation will go below 2%

[GoSeigen]

I think inflation will go below 2%

And Tedx was mocking the BoE saying that even with rates falling they would still raise rates -- implying that they are hopeless at their jobs and stuck in some sort of rut...

I think it's fair enough that some people think this way. I don't agree necessarily; my view is that recently (last couple of decades) the market has been wagging the BoE and not the other way round. The BoE's balance sheet got so small that they were all but irrelevant. It's changing, but even now, the market practically forces the BoE to act IMO. (Media tend to put a different spin on it: believing the MPC to be sitting on Mt Olympus, they typically say that the markets are "predicting" the next move of the BoE.)


GS

[vand]

The BoE are clueless as always. It's is crystal clear that they were too slow with tightening on the way up and then too slow to pivot even when it's so obvious that they have overcooked it and have strangled out all economic growth. Even in most recent meeting 3 members were still voting to RAISE rates!!

With inflation quickly cooling, Real interest rate are rising at a substantial pace, right when they should falling as economic activity drops off.

This is very basic stuff. You are supposed to run your moneyary policy counter-cyclical in order to smooth out the business cycle. These morons are completely f-ing it up and managing to run it pro-cyclical and exacerbating the natural peaks and troughs. It's incredible that they can get it so wrong. Complete imbeciles.

[Dod101]

There is certainly something wrong with a system that is able to overlook the talents of a guy on the internet in favour of clueless morons who actually make it onto the Monetary Policy Committee.

Dod

[dealtn]

This is very basic stuff.

What is really basic is looking at the mandate and the job they are tasked with doing before making such inaccurate statements. Similarly accusing the BoE of the perceived faults if the MPC.

[Nimrod103]

This is very basic stuff.

What is really basic is looking at the mandate and the job they are tasked with doing before making such inaccurate statements. Similarly accusing the BoE of the perceived faults if the MPC.

Indeed one should always look at the mandate which the MPC is given. At its outset in 1997, AIUI, it sole purpose was to determine the appropriate interest rate for the UK, and we ended up with a colossal boom in housing prices. So clearly a narrow mandate was a big mistake, but then what could one expect from Gordon Brown, who determined that mandate.

However, and quoting Wikipedia, Its secondary aim – to support growth and employment – was reinforced in March 2013. It will be interesting to see what their record will be as we head into an unknown downturn.

[vand]

This is very basic stuff.

What is really basic is looking at the mandate and the job they are tasked with doing before making such inaccurate statements. Similarly accusing the BoE of the perceived faults if the MPC.

So do you think that we should be raising rates even higher like 1/3 of the MPC think still needs to happen, considering we already have:

11 months of disinflation
Highest nominal rates for 20 years
Highest real rates for 15 years
Zero GDP growth in last 4 quarters
Negative growth in last quarter

But of course I am sure the imbeciles at the MPC still think that inflation 1.9% above an arbitrary target is the biggest fight they have.

[Oggy]

The economy is simply used as a political football. Thus we do not have credible management of it.

[CliffEdge]

Seems to me the BoE is doing fine considering the UK's parlous economic state and risk of our total bankruptcy following 2016.

Of course, I realise that many of you didn't live through the corrosion of inflation that the (Sick Man of Europe) UK suffered during the 1970s that was only truly banished by joining the EEC.