Interest Rates tomorrow

Theory is the more expensive it is to borrow cash the less there is in circulation, which reduces inflation.

That's the theory
 
Foolweary said:
Theory is the more expensive it is to borrow cash the less there is in circulation, which reduces inflation.

That's the theory
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You are correct. Trouble is now, with inflation being driven by world commodity prices, and mortgage borrowing already higher due to the Kwarteng / Truss disaster, putting mortgages up even more will be inflationary.
 
The FED raised their rates by 3/4 percent today, the trouble is that all the goods purchased from china have to be paid in US dollars,
the same with oil, etc, so we will have to raise interest rates purely to keep the pound-to-rate dollar the same, otherwise, we will have inflation from
the higher imports and oil prices. So I expect at least a 3/4 percent rise.
The big problem is that interest rates will increase mortgage payments and decrease the available money to spend in people's customer's
pockets. I can see plenty of small businesses folding over the next year with a fall in demand and energy prices increase of 800%, as they
have barely recovered from the effect of covid on their trade.
 
I don’t understand the intricacies of economics, but raising base rate seems to me to be inflationary in itself. Global issues have pushed energy, fuel and food prices up, raising interest rates will increase everything, including mortgages. Surely all this means people will have less disposable income, therefore will buy less, therefore some businesses will fail and we will go into recession. Is that the plan? Will that lead to retailers dropping prices?
 
Matesrates said:
I don’t understand the intricacies of economics, but raising base rate seems to me to be inflationary in itself. Global issues have pushed energy, fuel and food prices up, raising interest rates will increase everything, including mortgages. Surely all this means people will have less disposable income, therefore will buy less, therefore some businesses will fail and we will go into recession. Is that the plan? Will that lead to retailers dropping prices?
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As per Foolweary’s earlier post, the BoE Monetary Policy is that they raise the interest rate in times of high inflation, the economic theory being that as the cost of borrowing rises, people indeed have less disposable income and/or are encouraged to save, thus spending less on goods & services, which hopefully slows down price increases/inflation.

It’s not pretty, but that’s how it works (Allegedly)….
 
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Matesrates said:
I don’t understand the intricacies of economics, but raising base rate seems to me to be inflationary in itself. Global issues have pushed energy, fuel and food prices up, raising interest rates will increase everything, including mortgages. Surely all this means people will have less disposable income, therefore will buy less, therefore some businesses will fail and we will go into recession. Is that the plan? Will that lead to retailers dropping prices?
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That's why official inflation rates aren't a useful measurement of cost of living increases. Added to that, interest rates have been held artificially low for at least three decades. We simply have a situation now where reality, in the form of various global crisis, a broken financial system, decades of wage stagnation, and unsustainable increases in rentier aspects of the economy, have finally come home to roost.

The issue is that there isn't a fix in normal recognised economic management terms because of the factors previously mentioned. Energy is already on the verge of being unaffordable, as is food, mortgages were already at a level where they were ultra high risk in respect of the amount of take home pay they absorbed, and monthly payments will probably be 75% higher by mid 2023, and that is with Interest rates still being suppressed to avoid wholesale business and corporate collapse.

A typical investment profile would consider that a company with a debt profile of less than 3:2 (three units of debt to two units of equity) would be considered normal, it doesn't become high risk until it hits 2:1. at 1:1 most investment analysts would consider a large company under-debted. When you are acquiring debt at less than 1% it may not be an issue (but it really is if you do proper risk assessment), at 4% it is an entirely different matter. The base rates according to market pressures should already be in the region of 7%.
 
I don't understand how this works - people have more cost of living costs, cut back on spending retail and leisure-wise so businesses go to the wall, homes get repossessed etc. All of this weeks after Lizz was going to spend more to help the economy. What a shambles and it's almost like the people in charge don't understand how it works either.
 
Junior_BentsPlatformShoes said:
I don't understand how this works - people have more cost of living costs, cut back on spending retail and leisure-wise so businesses go to the wall, homes get repossessed etc. All of this weeks after Lizz was going to spend more to help the economy. What a shambles and it's almost like the people in charge don't understand how it works either.
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Because they don't. The basis of economic management is set by thinking established 200 years ago and that was largely set by the principles of economic advantage falling to just a few people. Trying to build or manage an economic system that functions for the masses will not work if its based on traditional orthodoxies.
 
With rising mortgage rates (30 year high) energy costs, fuel costs, food costs, pretty much everything else shooting up through the roof I’am predicting a winter of more and more strikes as wage rises being offered are just way to low some people not even getting a pay rise.
Anyone know what the Criteria is for getting on a plane and going to Rwanda? Can us locals apply? 🤷‍♂️
 
Matesrates said:
I don’t understand the intricacies of economics, but raising base rate seems to me to be inflationary in itself. Global issues have pushed energy, fuel and food prices up, raising interest rates will increase everything, including mortgages. Surely all this means people will have less disposable income, therefore will buy less, therefore some businesses will fail and we will go into recession. Is that the plan? Will that lead to retailers dropping prices?
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Alas Mates, that is the aim. Businesses borrow less because of the higher prices. The wealthy who are not dependent on running businesses invest in safer stocks (because of the interest rise). Unfortunately us ordinary people whose earnings are largely spent on everyday living don't have spare cash to invest so instead we pay higher mortgages and higher energy bills. In other words, those who have spare cash benefit, whilst everyone else doesn't.
 
Junior_BentsPlatformShoes said:
I don't understand how this works - people have more cost of living costs, cut back on spending retail and leisure-wise so businesses go to the wall, homes get repossessed etc. All of this weeks after Lizz was going to spend more to help the economy. What a shambles and it's almost like the people in charge don't understand how it works either.
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"almost" ?
 
For years, successive governments have encouraged us through the education system... to better ourselves away from manufacturing jobs in favour of higher educational non productive jobs... the leisure industry being one example.
When the shit hits the fan,as it now has.... we still need...
Food
Clothes
Shoes
White goods
Cutlery
Furniture
..... the list goes on and on....
If your economy is based on the manufacture and production of said items you continue to keep people employed and cushioned against the worst.... you reap what you sow.
Nobody should be surprised.
 
Newholland said:
For years, successive governments have encouraged us through the education system... to better ourselves away from manufacturing jobs in favour of higher educational non productive jobs... the leisure industry being one example.
When the shit hits the fan,as it now has.... we still need...
Food
Clothes
Shoes
White goods
Cutlery
Furniture
..... the list goes on and on....
If your economy is based on the manufacture and production of said items you continue to keep people employed and cushioned against the worst.... you reap what you sow.
Nobody should be surprised.
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Should we just gloss over the Thatcher plan to smash the Unions and effectively turn the country into Europe's distribution warehouse...Then along comes Brexit.
 
Newholland said:
For years, successive governments have encouraged us through the education system... to better ourselves away from manufacturing jobs in favour of higher educational non productive jobs... the leisure industry being one example.
When the shit hits the fan,as it now has.... we still need...
Food
Clothes
Shoes
White goods
Cutlery
Furniture
..... the list goes on and on....
If your economy is based on the manufacture and production of said items you continue to keep people employed and cushioned against the worst.... you reap what you sow.
Nobody should be surprised.
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A lot of the manufacturers went aboard because the wages was less and the unions were less powerful.
 
It’s an absolute mess! Thing is, there are departments in Whitehall that measure spending, inflation, interest rates etc, etc….. I take it the Government take bugger all notice of warnings and how to proceed and avoid a recession? Utter clowns
 
Normal people with mortgages and families get fucked once again, nice one.
 
SeasideTerrier said:
Should we just gloss over the Thatcher plan to smash the Unions and effectively turn the country into Europe's distribution warehouse...Then along comes Brexit.
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Absolutely not... “for years, successive governments”.... As for Brexit... I agree with Sir Kier.... we get on and make it work.
 
Seasider1887 said:
You are so negative mate. Get your ass into gear and make more money.
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I wasn’t referring to myself, I don’t have a mortgage or any dependants but I know there’ll be hardworking people who are in the shit because of this and there are other people who could do more to help.

Nice try though.
 
1966_and_all_that said:
Either that or we think about feeding children, waiting for GP appointments that will never come, keeping elderly relatives warm, helping our children to pay their mortgages.
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I'm not advocating that we disregard things at all. Just purely speaking on the topic of interest rates and the economy, the benefits of these higher rates will only be reaped in the long run. It's the job of the government to help us all through the short run.
 
18YearFreeTrial said:
I'm not advocating that we disregard things at all. Just purely speaking on the topic of interest rates and the economy, the benefits of these higher rates will only be reaped in the long run. It's the job of the government to help us all through the short run.
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They are responsible for short, medium and long term.

They often forget about the latter two due to self interest.
 
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