The Bank of England Monetary Policy Committee has held interest rates at 0.5% for over five years now. But the reasons for reducing it to that historic low level have largely evaporated by this time. So the question is, what will they do next and when? Let me make a prediction, or guess: I think they will raise it to 0.75% in October 2014. Anyone else want to have a go?
So why are they still so low ? Is it just another way of transferring wealth from the prudent to the feckless ? Or are there other reasons such as desperately trying to avoid a debt spiral into oblivion ?
I'm not an economist by any stretch of the imagination but in my view a low BOE interest rate is to try and get retail banks to help industry and to generate industrial and commercial growth so that "we" all prosper. However they then have to rein back in the retail banks and the feckless public from spending what they don't have so that we don't end up with the economic problems we had before October 2008.
In the nicest way possible, I hope you never get in a position to make that happen! It would cripple my tenants...
They will creep up to 1% in the next 6-12 months, just as a warning shot. They won't move higher then that for the next 10 years minimum though.
That'd be nice - weve got a tracker that runs at .5 above base rate (I think that's the phrase that was used at the time) - we got the best deal in the world ever the month before they coined the phrase "Credit Crunch"...
The whole worlds debt has spiralled out of control, interest rates won't going anywhere until the crash. Or if a miracle happens and Jesus comes down from the heavens again to wipe the debt out and clip our crazy politicians over the ear for being idiots. So you're safe.
If inflation had been higher, the interest rate would have been raised long since, obviously. But actually inflation has been low and getting lower, so the real risk has been deflation (even after some quantitative easing). That argues against raising the rates, and is no doubt why they have been so low for so long. It has been mooted that the MPC will start raising them by slow gradual degrees giving advance signals; this would be better for stability than leaving it too long, then having to raise them sharply. They could go for some more QE at the same time, even though that may appear inconsistent. Well, that's what I think.
