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5 "Tells" that the Stock Markets Are About to Reverse

UK Interest Rates Rise 2010 Sentance

Interest-Rates / UK Interest Rates Jan 15, 2010 - 05:29 PM GMT

By: Nadeem_Walayat

Interest-Rates

Best Financial Markets Analysis ArticleThe mainstream press this week is starting to fragment from its near consensus view that interest rates would remain unchanged or little changed well into 2011 following a few sentences from Andrew Sentance, a member of the Bank of England's Monetary Policy Committee who's comments have been jumped upon to now generate headlines of interest rate rises this year though backed up with little or no actual analytical substance, which is highly suggestive of the press again flip flopping in the opposite direction every other week going forward.


Telegraph - 14th Jan 2010 - Why the Bank of England will raise interest rates as deflationary threat melts away

In an interview published yesterday, Andrew Sentance, one of four externally appointed members of the Bank of England's Monetary Policy Committee, seemed to hint at higher rates to come.

He saw little chance of the double-dip recession feared by some and felt that enough had already been done to lift the economy out of recession. But this is a long way from saying that the bank rate would be rising within a few months.

Then later in the same article, the telegraph hedges its interest rate bets with :

Roger Bootle of Capital Economics. So worried is he about the private debt overhang that he's gone out on a limb and predicted that the bank rate will remain below 1pc for the next five years. David Owen, chief economist at Jefferies, takes a not dissimilar view, though his prediction that European and UK rates will remain as they are doesn't extend beyond the next year.

The Guardian - 13th Jan 2010 - Inflation lurks in wings as recovery gets going, warns MPC member

"If the MPC comes to the decision that it doesn't want to add to the monetary stimulus it doesn't mean it is going to tighten. There could be 'wait and see' while the recovery gathers momentum."

Asked whether the financial markets were right to assume that policy was on hold for the rest of the year, Sentance said: "It would not be wise to put yourself in that camp. A lot can happen in a year.

FT - 14th Jan 2010 - Bank of England hawk boosts sterling

Andrew Sentance, a member of the Bank of England's monetary policy committee, said UK interest rates might have to rise this year. Mr Sentance suggested that the Bank should not extend its quantitative easing programme further and should adopt a "wait and see" approach to further asset purchases.

UK Interest Rate Forecast 2010 and 2011

The in-depth analysis and forecast for UK interest rates for 2010 and 2011 followed similar preceding analysis for UK inflation and economic growth the resulted in the following interest rate conclusion and forecast for 2010 and 2011.

The primary message from my accumulative analysis of inflation, economy and in this article is that the Bank of England WANTS to swim in the warm waters of Inflation after the deep freeze of Deflation, which strongly implies that the Bank of England will IGNORE soaring inflation early 2010 and instead DELAY raising interest rates until it sees actual evidence of a strong economic sustained recovery which my analysis suggests should transpire during the first half of 2010. Therefore the BoE will be focused on the quarterly GDP data, first Q1 to be released at the end of April 2010 and then Q2 to be released late July 2010. Which means that there is a high probability that the first rate rise may not materialise until August 2010. After which rates will be increased not in line with inflation but in line with improving GDP and other indicators of economic activity into the end of 2010.

As a final conclusion, I expect a presently petrified Bank of England to be gradually forced by the market to start raising the UK Base interest rate in small steps of 0.25%, with the first rate rise probably coming just before release of Q2 GDP Data (July) in June 2010 i.e. after the next election deadline and then followed in August and September 2010 on further indicators of improving economic activity. My concluding target is 3% by mid 2011, the difficulty is in saying where rates will be at the end of 2010 as the range is 1.5% to 2%.

UK Interest Rates Forecast 2010-11: UK interest Rates to Start Rising From Mid 2010 and Continue into end of 2010 to Target 1.75% / 2%, Continue Higher into Mid 2011 to Target 3%.

For the full implications of the interest rate trend forecast, read the full analysis here.

Forecasts for UK Inflation and Economy 2010 and Beyond

The below are the concluding forecast graphs from in depth analysis for UK inflation and economy that built towards the UK interest rate forecast for 2010 as well as the inflation mega-trends ebook. To receive this analysis and forecast in your email in box, ensure you are subscribed to my always free newsletter.

UK Inflation Forecast for 2010

The sum of the above and recent analysis is for UK inflation to spike higher in the coming months during early 2010. This is inline with my view that the Labour government has succeeded in sparking a strong debt fuelled economic recovery that will become clearly visible during the first quarter of 2010. I expect UK inflation as measured by CPI to break above the Bank of England's upper CPI target of 3% very early in the year, and stay above 3% for most of the year only coming back below 3% late 2010 as a consequence of the next governments attempts to bring the unsustainable budget deficit under control.

UK Economy GDP Forecast for 2010 and 2011

The sum of the above analysis is for a strong economic recovery into the end of 2010 which given the pessimism today I term as the Stealth Election Boom that followed the Stealth Bull Market of 2009, the economic 'boom' will continue in to a peak in Q1 2011, which will be followed by weakness during 2012 and 2013 and strong recovery for 2014, and into a 2015 summer general election, breaking this trend down into GDP terms for end 2010 +2.8%, 2011 +2.3%, and taking account of the election cycle preliminary GDP projections for 2012 of +1.1%, 2013 +1.4%. 2014 + 3.1% with expectation of strong Q1 growth for 2015.

Therefore I just cannot see this double dip recession that the mainstream press and so called think tanks are obsessing over at this point in time, no year on year economic contraction or even a quarter on quarter dip is visible.

UK Strong Economic Recovery 2010 +2.8%, Q1 2011 peak of +3.4% (year on year), 2011 End +2.3%. Q4 2009 +0.6%, Q1 2010 +1.1%. Q2 2010 + 1.3% Election Boom. Q3 2010 +0.9% Q4 2010 +0.6%, NO Double Dip Recession, NO Negative Quarters for 2010 or 2011.

Implications for Savers and Investors will follow in my ebook which I will share for free on completion by next weekend, ensure you are subscribed to my always free newsletter to get this in you email in box.

Source: http://www.marketoracle.co.uk/Article16450.html

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market . Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 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

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

HomoSafari
16 Jan 10, 07:04
money supply

The BoE has inflated the money supply through 'QE' and one of it's members tells us that inflation 'lurks'. The understatement of the year already!


Halo572
16 Jan 10, 07:04
Inflation

Lurks in wings? I am afraid it has been at the sparkling water already.

Being my tipple of choice, I know what the prices are at all the main supermarkets as I use mysupermarket to make my shopping lists.

Today I have noticed that Asda is £1.25 - +2.5%, Tesco - £1.23 - +1.6% and Sainsbury's - £1.30, no change. I thought inflation was minus?

Maybe the smart money is moving into carbonated drinks and they will soon be more expensive per litre than our 116p and increasing daily petrol. The oil companies would then release the plans for the water powered cars they have always supressed.


FredSly
16 Jan 10, 07:05
Andrew Sentance No Credibility

Is this Andrew Sentance who has no fears of a double-dip recession the same Andrew Sentance who in 2008 couldn't even see the first recession coming?

Speech, Andrew Sentance, February 2008. "How Big Is The Risk Of Recession?"

"In my judgement an outright recession ? in which economic activity falls year-on-year ? is a remote risk for the UK economy at present."

His comments sound like a party political broadcast for the Labour party. Pre-election "We have fixed everything vote for us" but he also says "A lot can happen in a year" so post election if addicted to debt Labour get in again they can start printing more money.


mahavati
16 Jan 10, 07:06
Sentance is Delutional

"In 2008, we moved from a position where the economy was growing quite healthily at the beginning of the year to diving into deep recession by the end of the year. Last year we moved from the position where a deep recession was getting deeper to a position where the economy is now recovering, albeit in an early phase. It would be wise not to be too definitive about what to expect this year."

In other words he doesn't know what is happening. I think Mr Sentance is just plain wrong and I wonder which planet he is living on. It certainly isn't Earth. He uses a lot of words to say not very much. If he thought we had a healthy economy in 2008 when we were entirely dependent on house price inflation and massive debt accumulation to drive the growth then god help us. The man's delusional! And he's advising the government! We're stuffed!


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