Economic outlook 2014: how optimistic are you?

[Herr Tubthumper]

For me the best part of the recovery will be interest rates going up.

This is not going to happen in the next few years. Carney had said himself. It will totally destroy a very fragile economy.

 

[Uncle Spielberg]

I remember those days of 15% as well as only have a few years left on mine, the expectation is low and people have budgeted that way these days

If people have budgetted on a 0.5% bank base rate they are deluded. Bank base rate has averaged around 7% before 2008. People have now become totally unrealistic about a true interest rate and would consider a 1% bank base rate a disaster. This is the outcome of rates being 0.5% for so long as that will prove to be more damaging long term than anything else.

 

[Uncle Spielberg]

This is not going to happen in the next few years. Carney had said himself. It will totally destroy a very fragile economy.

It may do but a 0.5% interest is a crisis measure. All the time rates are at this level all it says to the World is " our economy is f*cked " We could flatline like Japan for 2 decades if this happens.

 

[Herr Tubthumper]

If people have budgetted on a 0.5% bank base rate they are deluded. Bank base rate has averaged around 7% before 2008. People have now become totally unrealistic about a true interest rate and would consider a 1% bank base rate a disaster. This is the outcome of rates being 0.5% for so long as that will prove to be more damaging long term than anything else.

What is the true interest rate in your opinion?

 

[Uncle Spielberg]

What is the true interest rate in your opinion?

Inflation 2%, should be 4-5%. That is where we should be now.

 

[drew]

If people have budgetted on a 0.5% bank base rate they are deluded. Bank base rate has averaged around 7% before 2008. People have now become totally unrealistic about a true interest rate and would consider a 1% bank base rate a disaster. This is the outcome of rates being 0.5% for so long as that will prove to be more damaging long term than anything else.

What exactly does that mean, 'bank base rate has averaged around 7% before 2008.'? Is that over the last 20 yrs, the last 10 yrs or even the last 300? Fact is people might be unrealistic but hasn't that been out of necessity due to the recession and non-existent pay rises!

 

[Herr Tubthumper]

It may do but a 0.5% interest is a crisis measure. All the time rates are at this level all it says to the World is " our economy is f*cked " We could flatline like Japan for 2 decades if this happens.

Interesting point you make about Japan. I was reading and article about their 'lost decade' a while back and it basically said that their economy did grow just at a very small rate and was only called the lost decade when compared to other nations with growth of around 3-4%. But, growth is growth and with hindsite it could be argued their's was a model of stable long term growth. The UK would take 10 years of Japan style growth if it was offered right now.

 

[Westdene Seagull]

Can only speak for myself but I constantly review how my business has gone since the recession started in 2007.

It is quite clear that turnover has slowly increased every year with the vast majority of my (admittedly private sector manufacturing SME) Clients still in business.

Despite all of the drama queens who post about meltdown and apocalypse on here I suspect the UK Economy will do better than most of the rest of the EU in the next year or so.

How ironic - I work for an SME and this very morning have just been told I'm at risk of redundancy. So my middle of the road optimism has just dived to "we're f*cked".

 

[Uncle Spielberg]

What exactly does that mean, 'bank base rate has averaged around 7% before 2008.'? Is that over the last 20 yrs, the last 10 yrs or even the last 300? Fact is people might be unrealistic but hasn't that been out of necessity due to the recession and non-existent pay rises!

The bank base rate has never been below 2% in its 400 year history before 2008. For 20 years before 2008 it averaged around 7%.

 

[Herr Tubthumper]

Inflation 2%, should be 4-5%. That is where we should be now.

This Canadian Carney chap is up for 'high' inflation and low interest rates though. I am pretty sure I have read he is more interested in economic growth as opposed to specifically worrying about inflation i.e. one will look after the other.

 

[piersa]

http://www.youtube.com/watch?v=UdyQd6Xks7A&feature=youtu.be

be interested to know people's views on this. I think it is a bit sensationalist but is probably nearer the truth than I would like it to be.

 

[Herr Tubthumper]

The bank base rate has never been below 2% in its 400 year history before 2008. For 20 years before 2008 it averaged around 7%.

These are unique times though; I'm not sure how much relevance the past has to be honest.

 

[Herr Tubthumper]

How ironic - I work for an SME and this very morning have just been told I'm at risk of redundancy. So my middle of the road optimism has just dived to "we're f*cked".

Dont worry WS. You only need to wait another year and you can vote the clowns out

 

[Uncle Spielberg]

These are unique times though; I'm not sure how much relevance the past has to be honest.

Interest rates have always been higher than inflation, that is how an economy works. All the time interest rates are below inflation it means the economy is broken.

 

[Westdene Seagull]

Dont worry WS. You only need to wait another year and you can vote the clowns out

I'd move the Germany but they have more clowns than we do

 

[Uncle Spielberg]

This is not going to happen in the next few years. Carney had said himself. It will totally destroy a very fragile economy.

It could be as soon as this time next year.

 

[Westdene Seagull]

This is going to be sound very naive but would it not be possible to have two BoE interest rates - a standard one for everything but mortgages and then a mortgage one ?

 

[Uncle Spielberg]

This is going to be sound very naive but would it not be possible to have two BoE interest rates - a standard one for everything but mortgages and then a mortgage one ?

Lenders set their own variable rates which are between 2.5% - 5.99% at the moment. Bank base rate is only linked to a tracker mortgage and some lucky souls are paying virtually nothing on their mortgage for nearly 6 years now. I have quite a few clients who have saved tens of thousands of pounds in the last 6 years.

 

[sten_super]

Inflation 2%, should be 4-5%. That is where we should be now.

If interest rates were 4-5% banks and businesses would save more, bank lending would dry up, investment would slow and the economy would be even more in the doldrums. Broadly speaking, low interest rates make spending more appetising and saving less so. Interest rates have a significant impact on inflation and unemployment - it's not as simple as saying that, historically, when inflation has been X% interest rates have been Y% so that's where we should set them.

This is going to be sound very naive but would it not be possible to have two BoE interest rates - a standard one for everything but mortgages and then a mortgage one ?

The point is that mortgages are but one way of banks lending money. If depositing money with the central bank, or lending to businesses for investment, was more attractive (i.e. had a higher interest rate) than lending to households for mortgages, then all banks would do the former at the expense of the latter.

 

[Uncle Spielberg]

Interest rates should NOT be below inflation rates. Interest rates have been 10% before with inflation at 7% and the economy was booming. A higher interest rate is not the sign of a poor economy, quite the opposite.