vand wrote:TheMotorcycleBoy wrote:Tara wrote:Does anyone seriously think that the BoE will actually do what is required required to fight inflation? With inflation at 10% and interest rates at 1% it certainly does not look like it.
Any central bank that was really concerned about 10% inflation would have already put interest rates up to at least 4%. And the same also applies to the ECB and to the Fed.
It seems that the BoE is far more interested in propping up the absurdly overvalued property market in the UK, than it is in fighting 10% inflation.
I think that with many things, the last thing that the CBs should be doing is increasing rates.
Inflation in the UK is almost entirely supply-side. Absolutely nothing the BoE can do, IMHO.
1. Oil/gas supplies
2. Food supplies (especially grain)
3. Manufactured good supplies (Chinese factories on lock down)
4. Metals (resulting from closure of Russia supplies)
5. Labour supplies (many EE workers returning home post Brexit or Covid)
6. etc.
Matt
I have to disagree strongly. We've seen a huge boom in demand for home extensions etc all fueled by ultra low interest rates. If you can tack on a 30sqm onto your existing home while keeping payments the same as what you currently pay then its no surprise that there's been a huge explosion in demand for physical assets. This is worldwide, not just UK. When interest rates are on the floor then many capital intensive projects get greenlighted because the long term cost of funding them falls dramatically.
Interest rates play a function to coordinate production across time.
Austrian business cycle theory is very good at explaining this:
https://www.youtube.com/watch?v=9a-eUKjnDfM
Whilst I'm sure that some people are wishing to extend their properties, aren't those expenditures insignificant in comparison to billions of the world's population struggling with higher food, energy and material costs (resulting from shortages) ?
Anecdotally...
vand wrote:anecdotally, I just did a little shop for the next few days at my local co-op and there's been another round of price hikes on many items. Bacon, cheese, eggs, produce all had another 10-15% tacked on. You can see the locals thumbing the price on everything they pick up and remembering how it used to cost less. We're not through the worst of it yet, I feel.
How many of the locals you spotted (as a fraction) you would say, were also extending their houses, in addition to struggling to keep their weekly expenditures down?
I have to admit none in my immediate neighbourhood of 12 or so middle class dwellings, are currently extending their homes. But all will be buying food, energy, manufactured goods etc.
Matt