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Interest rates : one for the City types


Mungler
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So, all the figures are suggesting inflation is through the roof and I’m wondering if this is short term or a longer term problem and either way, what’s next. 

A mate in freight was saying that the primary driver (the cost of a container being shipped from China) is looking like staying high - it used to be £3k to £4K to get a container from China, now it’s £12k-£15k. However, the Chinese have got used to doing less work for a greater return and are now deliberately throttling supply because it suits them.

If the world falls off a cliff and the 4 million people currently on furlough end up redundant then inflation may reduce and things calm as people all start pulling up ladders and tightening belts. 

I doubt it though because all the Brexit predictions were for inflation (as a net importer nation) and we’ve not got stuck into that elephant in the room yet.

The government could try and take the heat out of the economy by putting up vat say to 25%. Traditionally it’s taxation or interest rates that are used to tackle inflation.

Currently base rate is .1% and what’s the lowest that can realistically go to, and any further reduction is not exactly going to make anyone a big saving.

There are 10 year fixed rate products out there and I’m weighing one up.

Any bright banker types on here with any idea what’s going on and what’s going to happen next?

Cheerd all.

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FT - 19 July: 

It is still too early to start tightening UK monetary policy, even though it now looks possible that the economy will emerge from the pandemic without sustaining any long-term damage, according to a member of the Bank of England’s rate-setting committee.

Professor Jonathan Haskel, an external member of the monetary policy committee, on Monday said the risk of premature tightening choking off the recovery still outweighed the risk of inflation temporarily exceeding the BoE’s 2 per cent target, despite the improvement in the country’s medium-term prospects.

“For now, tight policy is not the right policy,” he said in a webinar. “The economy is not fully recovered yet and faces two headwinds over the coming months: the highly transmissible Delta [coronavirus] variant and a tightening of the fiscal stance.”

The comments from one of the most consistently dovish members of the nine-strong committee point to a likely split of opinion within the MPC when it meets next month to set policy.

Last week, Michael Saunders, another external member of the committee who had previously favoured very loose policy, signalled he could vote to pare back the BoE’s bond-buying programme as early as the August meeting.

Sir Dave Ramsden, a BoE deputy governor, also indicated last week that he was changing his mind about inflation after official data showed prices rising at a faster pace than the BoE had forecast. 

 

Jonathan Haskel Jonathan Haskel: ‘For now, tight policy is not the right policy’ © Jason Alden/Reuters

Haskel agreed that the prospects for the UK economy were now much brighter than they had been at the start of the year, thanks to the rollout of vaccines, combined with fiscal and monetary support.

 

There was now at least a possibility that a strong recovery in the labour market, combined with rapid digitalisation, would return gross domestic product to its pre-pandemic path, he said, with “no scarring at all and even a boost to potential output”. 

The BoE forecast in its May monetary policy report that output would remain around 1.25 per cent below its pre-pandemic path in the medium term, while the Office for Budget Responsibility in March pencilled in a permanent hit to GDP of 3 per cent, largely because of the slump in investment.

Haskel argued that economic “scarring” could be less than feared, because the drop in investment had been concentrated on physical assets, with companies still investing strongly in intangible assets, such as R&D and software.

Meanwhile, changing working practices could yield lasting productivity gains, he said. This was driven by rapid digitalisation and automation, rather than the adoption of homeworking, where the evidence of productivity gains was very mixed, he said.

Inflationary pressures could rise in the short term, as people began to consume more in expectation of better times ahead, he acknowledged. But this did not make it necessary to raise interest rates, he argued.

A lot of the rise in inflation over the coming months would be temporary, because of the last year’s swings in oil prices, while the recovery was still fragile — and had so far occurred “under the protective blanket” of government support schemes that were now set to expire.

Shipping costs have risen because of a shortage of active vessels.  Numerous carriers were mothballed - cold lay ups - hence the delays in restocking Chinese tech across the West. 

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I’ve just asked someone who treads these boards and his response was that in his view rates will stay low and for a very long time to come.

This chap’s credentials are good enough for me to stop thinking about it at all now.

And so now we’ll all just have to wait and see.

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49 minutes ago, Mungler said:

I’ve just asked someone who treads these boards and his response was that in his view rates will stay low and for a very long time to come.

This chap’s credentials are good enough for me to stop thinking about it at all now.

And so now we’ll all just have to wait and see.

? So you have decided for or against the 10 Yr fixed rate? For me the impact of uk inflation is felt through my pension but of greater interest is tge performance of UK plc. I am still 60 % in UK but all of the stuff is mistly down (health care excepted) relative to elsewhere. 

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56 minutes ago, oowee said:

? So you have decided for or against the 10 Yr fixed rate? For me the impact of uk inflation is felt through my pension but of greater interest is tge performance of UK plc. I am still 60 % in UK but all of the stuff is mistly down (health care excepted) relative to elsewhere. 


I’m not going to do the fixed rate.

As for the stock market, with all that’s gone on, it’s a total mystery to me how it’s sitting at over 7000.

It’s a tricky one - I’ve no idea how or where anyone in retirement is supposed to get a worthwhile income from, and with real world inflation running way over interest rates, cash in the bank is costing you money as it devalues itself.

 

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53 minutes ago, Mungler said:


I’m not going to do the fixed rate.

As for the stock market, with all that’s gone on, it’s a total mystery to me how it’s sitting at over 7000.

It’s a tricky one - I’ve no idea how or where anyone in retirement is supposed to get a worthwhile income from, and with real world inflation running way over interest rates, cash in the bank is costing you money as it devalues itself.

 

The thing is it was at 7000 way back in 2015. If we hadn’t gone through what we have I’m sure it would be way ahead now. 

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The after effects of the pandemic financially seems to be that households (on average) have more savings and are now itching to spend it. Up here you can’t get a tradesman or builder as they are so busy. A friend of mine has a window and roof business and has never been busier than now. 
It has been reported that there is an extra £190billion in savings and without the interest rates to make them favourable to keep people are now spending. 
Home offices, house moves, new cars, etc. There are a lot of companies doing well out of this and probably slightly less  doing badly (Airlines etc) and so the FTSE keeps a rather even keel.

I am no expert on this but do have a vested interest having recently retired and my pension is in managed funds.

 

 

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Hello, there is no crystal ball with investments , where ever you put your money you are taking a risk, even with this pandemic the stock markets have been holding up well, despite most saving investment only paying less than one percent, can anyone remember back to the 1980s ? House prices crashed, fast forward 40 years and it's a very different time, lowest interest rates and property prices high , if I were looking to invest money today it would still be a share portfolio , put your money in , hold your nerve, and in years to come you should have a better return than any savings bank account, 

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9 hours ago, Mungler said:


I’m not going to do the fixed rate.

As for the stock market, with all that’s gone on, it’s a total mystery to me how it’s sitting at over 7000.

It’s a tricky one - I’ve no idea how or where anyone in retirement is supposed to get a worthwhile income from, and with real world inflation running way over interest rates, cash in the bank is costing you money as it devalues itself.

 

We’ve gone fixed rate on our last purchase but the 5 year rates were so good it was pointless not doing so.  Personally I can’t see rates climbing much and would have stuck with a tracker had it been much cheaper

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18 hours ago, Mungler said:

... I’ve no idea how or where anyone in retirement is supposed to get a worthwhile income from, and with real world inflation running way over interest rates, cash in the bank is costing you money as it devalues itself.

A little while ago I read somewhere that global wealth was around 317 trillion USD and 45% of that was owned by Millionaires+.  If they store 1% of their wealth in BTC, then each BTC that will ever exist needs to have a value of 80k USD.

Since then, I've read Morgan Stanley have informed wealth advisors to deliver access to bitcoin, up to 2.5% of total net worth.

BTC can definitely go down from where it is today, even a lot, given potential governmental intervention and all the quantum computer advances in articles I seem to get in my news feed, but there is a case to be made that it should be a proportion of your investments.

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Have to say my faith is largely placed in my financial advisor who manages my pension. So far annual returns exceeding inflation plus a bit so overall happy with things as I get to pension age. Was discussing with OH what we do with what little spare cash we have at present given access is reasonably important with a daughter who could always drop the wedding bomb shell. Decided on Premium bonds for now. 

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