Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21
Investing in Google Deep Mind AI 2021 (Alphabet) - 6th Apr 21
Which ETFs Will Benefit As A Stronger US Dollar Reacts To Global Market Concerns - 6th Apr 21
Staying Out of the Red: Financial Tips for Kent Homeowners - 6th Apr 21
Stock Market Pushing Higher - 6th Apr 21
Inflation Fears Rise on Biden’s $3.9 TRILLION in Deficit Spending - 6th Apr 21
Editing and Rendering Videos Whilst Background Crypto Mining Bitcoins with NiceHash, Davinci Resolve - 5th Apr 21
Why the Financial Gurus Are WRONG About Gold - 5th Apr 21
Will Biden’s Infrastructure Plan Rebuild Gold? - 5th Apr 21
Stocks All Time Highs and Gold Double Bottom - 5th Apr 21
All Tech Stocks Revolve Around This Disruptor - 5th Apr 21
Silver $100 Price Ahead - 4th Apr 21
Is Astra Zeneca Vaccine Safe? Risk of Blood Clots and What Side Effects During 8 Days After Jab - 4th Apr 21
Are Premium Bonds A Good Investment in 2021 vs Savings, AI Stocks and Housing Alternatives - 4th Apr 21
Penny Stocks Hit $2 Trillion - The Real Story Behind This "Road to Riches" Scheme - 4th Apr 21
Should Stock Markets Fear Inflation or Deflation? - 4th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

UK Interest Rates To Rise to 5.75 percent as a Consequence of Excessive Expansion of Money Supply

Interest-Rates / UK Interest Rates Jul 04, 2007 - 08:54 PM GMT

By: Nadeem_Walayat

Interest-Rates

The Bank of England is expected to raise UK interest rates tomorrow from 5.50% to 5.75%. This is inline with the Market Oracle two year forecast for UK interest rates to hit 5.75% by Sept 07.

The Money Markets are pricing in a rise in UK interest rates, with the Pound hitting a new 26 year high against the US Dollar trading towards $2.02, and the 3 month Inter bank rate rallying to a near 6 year high of 5.96%.


The key reason for the anticipated rise in rates is that the Bank of England is effectively losing the battle against inflation. The RPI inflation measure even after the recent dip is still way above the 3% comfort level and as long as it remains so upward pressure on interest rates remain. The banks preferred measure the CPI, stands at 2.5%, above the 2% target, however the real rate of inflation as experienced by most people is much higher than the CPI and RPI measures and is estimated to be running at 6% and most closely reflects the surge in money supply.

The thing that I find so surprising is why the Bank of England failed to comprehend that when the money supply is running along at well above 10% for the last two years, that this is not going to eventually lead to much higher inflation.

money supply to 13.9%

The latest figures for May 07 push the annual money supply expansion to 13.9%. This implies that the rate rises to date are not going to have much impact on future inflation, as the money supply suggests there is more inflation in the pipeline.

Perhaps the BOE as an institution is too bureaucratic to recognise the obvious, or perhaps the MPC Committee have too much data thrown at them that they again miss the obvious. But whatever the reason, the Bank of England is way behind the curve in its decision making process.

Given this track record, the implications are that the bank will make the mistake of over tightening rates too far, rather than signaling that the money supply should be reigned in by other means, but the problem there lies that those decisions fall into the realm of controlling excess government borrowing due to overspending on state budgets. Which is the primary purpose of the central bank, i.e. to lend to the UK government as much money as they request by increasing the money supply, rather than the government having to go to the British people and raising their taxes to fund spending programme's. So perhaps the Bank cannot control future inflation or the money supply due to the real power of controlling the supply of money being out of their hands. This increases the risks of some sort of stagflation occurring.

Related:

UK CPI Inflation rate falls but RPI will ensure further rise in UK Interest Rates - June 07
Inflation report confirms further rise in UK Interest rates to 5.75% - May 07
UK strong house price growth signals further rises in interest rates - March 07
UK Interest Rate forecast for 2007 - Bank of England to do battle with inflation - Dec 06
UK Interest Rates could rise to 5.75% in 2007 - Nov 06
Interest Rates Correction is Over - March 2006
UK Long-term Interest Rates Trend is still UP ! - Nov 2005

 

By Nadeem Walayat
(c) Marketoracle.co.uk 2005-07. All rights reserved.

The Market Oracle is a FREE Daily Financial Markets Forecasting & Analysis online publication. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Jen
05 Jul 07, 09:34
uk Interest rate

Good call !

Look forward to the next 2 year forecast, soon ?


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules