Interest rates to remain high for 2 years

[bluedonkey]

"Bank of England warns interest rates will remain high for at least two years"
https://www.theguardian.com/business/20 ... -year-high

Interested to hear any thoughts how that affects our investment decisions. Short term deposit fixes versus longer term? Etc.

[Dod101]

"Bank of England warns interest rates will remain high for at least two years"
https://www.theguardian.com/business/20 ... -year-high

Interested to hear any thoughts how that affects our investment decisions. Short term deposit fixes versus longer term? Etc.

It depends a) on how much credence you give to any utterance from the B of E and b) what they mean by 'high'. As everybody knows by now, the current interest rates are not historically that high.

Dod

[Mike4]

"Bank of England warns interest rates will remain high for at least two years"
https://www.theguardian.com/business/20 ... -year-high

Interested to hear any thoughts how that affects our investment decisions. Short term deposit fixes versus longer term? Etc.

I can see property slipping back 20% or so, and with rents racing up the fastest I've ever seen (around here anyway), property might begin to look like a reasonable once again.

[Tedx]

They'll start falling next year. It's an election year. Along with taxes.

'We have taken the tough decisions needed blah blah blah'.... 'fiscal responsibility blah blah blah'.....'trust us with the economy, not the tax and spend Labour party blah blah blah'

[vand]

there is no chance his will happen imo.

the effect of rates changes, especially in an upward direction, are quite laggy and only begin to show up in the next year.

we will see a sharp slowdown in economic activity over the next year as everyone comes off their cheap mortgages and is forced to remortgage.Likewise for all short term business loans.

of course mr BoE has to say what he does because the narrative of the day calls for tight policy, but the reality is that the effects are only now just beginning to be felt. History has shown that bank IR cycles always to far in both directions, and this time aeems no different.

[Tedx]

there is no chance his will happen imo.

the effect of rates changes, especially in an upward direction, are quite laggy and only begin to show up in the next year.

we will see a sharp slowdown in economic activity over the next year as everyone comes off their cheap mortgages and is forced to remortgage.Likewise for all short term business loans.

of course mr BoE has to say what he does because the narrative of the day calls for tight policy, but the reality is that the effects are only now just beginning to be felt. History has shown that bank IR cycles always to far in both directions, and this time aeems no different.

Yeah, I'm just having a wee bit of fun - although it may happen.

It has been suggested that the rates rises have actually fuelled inflation to some extent i.e.

rates are put up = no effect on the majority of mortgage holders as they are on a fixed rate.
rates are put up = Cash shovelled to mortgage free cash rich folk = mucho discretionary spending on things like fancy restaurants and exotic holidays.

The first point though will change rapidly (is changing rapidly!) as these rates come off and folk are forced to refinance.

Jeremy Hunt said he would be over the moon* if higher interest rates caused a recession. Looks like he may well get his wish.



*Or similar

[pje16]

"Bank of England warns interest rates will remain high for at least two years"
https://www.theguardian.com/business/20 ... -year-high

Interested to hear any thoughts how that affects our investment decisions. Short term deposit fixes versus longer term? Etc.

It depends a) on how much credence you give to any utterance from the B of E and b) what they mean by 'high'. As everybody knows by now, the current interest rates are not historically that high.

Dod

Agreed, for those of us who remember mid-double digits

[vand]

It depends a) on how much credence you give to any utterance from the B of E and b) what they mean by 'high'. As everybody knows by now, the current interest rates are not historically that high.

Dod

Agreed, for those of us who remember mid-double digits

They are not high historically, but of course to put things into proper context, which I hope we are all great fans of doing here, one must point out the spike to double digits came off a base of mid single digits, so it could be convincingly argued that the impact of recent moves will be felt even more keenly as the percentage move to what people have become accustomed to is much more severe. Proper context means lending more credence to more recent data, as markets are adaptive.

This is also perfectly exemplified by the gradual move higher in PE ratios in recent decades. I don't expect to the S&P in single digit PEs in my lifetime. Past data becomes disseminated, and people understand the market much better today.

[pje16]

and people understand the market much better today.

I like to think I understood it back then when I was getting 13% on some healthy savings

[GoSeigen]

[
It has been suggested that the rates rises have actually fuelled inflation to some extent i.e.

rates are put up = no effect on the majority of mortgage holders as they are on a fixed rate.
rates are put up = Cash shovelled to mortgage free cash rich folk = mucho discretionary spending on things like fancy restaurants and exotic holidays.

Also known as Turkish monetary orthodoxy.

Perhaps the suggestion is that 80% Turkish-stlye inflation is exactly what we want?


GS

[Dod101]

Agreed, for those of us who remember mid-double digits

They are not high historically, but of course to put things into proper context, which I hope we are all great fans of doing here, one must point out the spike to double digits came off a base of mid single digits, so it could be convincingly argued that the impact of recent moves will be felt even more keenly as the percentage move to what people have become accustomed to is much more severe. Proper context means lending more credence to more recent data, as markets are adaptive.

This is also perfectly exemplified by the gradual move higher in PE ratios in recent decades. I don't expect to the S&P in single digit PEs in my lifetime. Past data becomes disseminated, and people understand the market much better today.

I am not at all sure that I agree with you but then I am not at all sure of your point either.

Dod

[Tedx]

[
It has been suggested that the rates rises have actually fuelled inflation to some extent i.e.

rates are put up = no effect on the majority of mortgage holders as they are on a fixed rate.
rates are put up = Cash shovelled to mortgage free cash rich folk = mucho discretionary spending on things like fancy restaurants and exotic holidays.

Also known as Turkish monetary orthodoxy.

Perhaps the suggestion is that 80% Turkish-stlye inflation is exactly what we want?


GS

Maybe they shouldn't have bothered putting up rates at all.

[vand]

They are not high historically, but of course to put things into proper context, which I hope we are all great fans of doing here, one must point out the spike to double digits came off a base of mid single digits, so it could be convincingly argued that the impact of recent moves will be felt even more keenly as the percentage move to what people have become accustomed to is much more severe. Proper context means lending more credence to more recent data, as markets are adaptive.

This is also perfectly exemplified by the gradual move higher in PE ratios in recent decades. I don't expect to the S&P in single digit PEs in my lifetime. Past data becomes disseminated, and people understand the market much better today.

I am not at all sure that I agree with you but then I am not at all sure of your point either.

Dod

I prefer a weighted average to a simple average

[mc2fool]

and people understand the market much better today.

I like to think I understood it back then when I was getting 13% on some healthy savings

And how much was inflation then? And income tax?

[pje16]

I like to think I understood it back then when I was getting 13% on some healthy savings

And how much was inflation then? And income tax?

Sorry lost in the fogs of time, that was back in the late 80s

[GoSeigen]

Also known as Turkish monetary orthodoxy.

Perhaps the suggestion is that 80% Turkish-stlye inflation is exactly what we want?


GS

Maybe they shouldn't have bothered putting up rates at all.

You're on actual crack!


GS

[vand]

I like to think I understood it back then when I was getting 13% on some healthy savings

And how much was inflation then? And income tax?

Could have been in the spike up to 15% driven by the ERM fiasco. Certainly was a good time to put some money into fixed income... but only with the benefit of hindsight and how disinflation subsequently played out.

Rates were generally rangebound between 8-12% over the previous 15 years anyway with a slight downward bias until that crisis - that was the "recent history" back then, so 15% was not out of line of the ordinary. The pain of the inflationary 1970s still loomed large, and much of Thatcher's first term even up to 1983 was spent battling stagflation. Back then a move from the recent "normal" range up to 15% wasn't the sea-change that many people today are making out.


All goes to show that nothing is "obvious" until you have the benefit of hindsight and the certainty of knowing how events actually unfolded to judge your decisions cherry pick the best stories to share

[Mike88]

The BoE's record of forecasting is not great. My uneducated guess is that the government will exert pressure on the BoE to lower interest rates next year in readiness for the General Election in October/ November 2024.

[mc2fool]

I like to think I understood it back then when I was getting 13% on some healthy savings

And how much was inflation then? And income tax?

Yeah, my point was that 13% sounds like lots, but if inflation is, say, 10% and there's 25% income tax, then the 13% gross becomes 9.75% net and so is less than inflation. And of course if inflation was even higher ....

[pje16]

And how much was inflation then? And income tax?

Yeah, my point was that 13% sounds like lots, but if inflation is, say, 10% and there's 25% income tax, then the 13% gross becomes 9.75% net and so is less than inflation. And of course if inflation was even higher ....

lots of people on here get excited today at 5 and 6%.. just saying