Best of the Week
Most Popular
1.Gold Price Trend Forecast, Where are the Gold Traders? - Bob_Loukas
2.Stocks Bear Market of 2017 Begins? Shorting the Dow At its Peak! - Nadeem_Walayat
3.Betting on President Trump Leaving Office Early, Presidency End Date - Betfair Market - Nadeem_Walayat
4.Why Stock Market Analysts Will be Wrong About 2017 - Clif_Droke
5.Is This The Best Way For Investors To Play The Electric Car Boom - OilPrice_Com
6.Silver Price 2017 Trend Forecast Update - Video - Nadeem_Walayat
7.Gold Price Set For Very Bullish 2017, Trend Forecast - Austin_Galt
8.10 Things I learned From Meetings With Trump’s Transition Team - - John_Mauldin
9.How Investors Can Profit From Trumps Military Ambitions - OilPrice_Com
10.Channel 4 War on 'Fake News', Forgets Own Alt Reality Propaganda Broadcasting - Nadeem_Walayat
Last 7 days
Brent Crude Oil Price Technical Update: Low Volatility Leads to High Volatility - 20th Feb 17
Trump’s Tax System Could Spark The Wave Of Self-Employment - 20th Feb 17
Here’s How to Stay Ahead of Machines and AI - 20th Feb 17
Warning Signs Of Instability In Russia - 20th Feb 17
Warning: This Energy Investment Could Wreak Havoc On Your Portfolio - 20th Feb 17
The Mother of All Financial Bubbles will be Unimaginably Destructive when it Bursts - 19th Feb 17
Gold’s Fundamentals Strengthen - 18th Feb 17
The Flynn Fiascom, the Trump Revolution Ends in a Whimper - 18th Feb 17
Not Nearly Enough Economic Growth To Keep Growing - 18th Feb 17
SPX Stocks Bull Market Continues to make New Highs - 18th Feb 17
China Disaster to Trigger Gold Run, Trump to Appoint 5 of 7 Fed Governors - 18th Feb 17
Gold Stock Volume Divergence - 17th Feb 17
Gold, Silver, US Dollar Cycles - 17th Feb 17
Inflation Spikes in 2017, Supporting Gold Prices Despite Increased Odds of March Rate Hike - 17th Feb 17
Roses Are Red... and So's Been EURUSD's Trend - 17th Feb 17
Gold Trade Note Sighted - 17th Feb 17
Gold Is Undervalued Say Leading Fund Managers - 17th Feb 17
NSA, CIA, FBI, Media Establishment 'Deep State' War Against Emerging 'Trump State' - 16th Feb 17
Silver, Gold Stocks and Remembering the Genius of Hunter S. Thompson - 16th Feb 17
Maps That Show The US’ Strategy In Asia-Pacific - 15th Feb 17
The Trump Stock Market Rally Is Just Getting Started! - 15th Feb 17
Tesco Crisis - Fake Prices, Brexit Inflation Tsunami to Send Food Prices Soaring 10% 2017 - 15th Feb 17
Stock Market Indexes Appear Ready to Roll Over - 15th Feb 17
Gold Bull Market? Or was 2016 Just a Gold Bug Mirage? - 15th Feb 17
Here’s How Germany Buys Time From China - 15th Feb 17
The Stock Trader’s Actionable Guide to Trump - 15th Feb 17
Trump A New Jacksonian Era? The Fourth Turning (2) - 14th Feb 17
Stock Market Yet Another Wall Street 'Witch's Brew' - 14th Feb 17
This Is Why You Don’t Own A Lot Of Stocks - 14th Feb 17
Proposed Tax Reforms Face Enormous Headwinds - 14th Feb 17
BBC Inside Out Tesco Rip off Offers - Determined to Lose Big Spend Customers! - 13th Feb 17
Is the UK An Economy Built on Debt? - 13th Feb 17
Stock Market VIX Cycles set to Explode in March/April 2017 – Part 2 - 13th Feb 17
Stocks At Record Highs - Will Uptrend Accelerate? - 13th Feb 17
US Dollar: 'Rumors of My Death are Greatly Exaggerated' - 13th Feb 17
Is This The Top Commodity Play For 2017? - 13th Feb 17
Trump a New Jacksonian Era? - 13th Feb 17
Stock Market at High Tide - 13th Feb 17
Channel 4 War on 'Fake News' Ends - The New News Age - 12th Feb 17

Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

Bank of England Interest Rate Policy Targets UK House Price Inflation

Interest-Rates / UK Interest Rates Feb 05, 2008 - 06:27 PM GMT

By: Adrian_Ash

Interest-Rates

Best Financial Markets Analysis Article"...Rising inflation in the cost of living didn't stop the Old Lady cutting interest rates in 2001, 2003 or 2005. Why change now...?"

WILL THE BANK of ENGLAND cut UK interest rates this Thursday?


Might Hillary and Barack have trouble getting together as running mates for November?

First up, the Bank of England's sole purpose in life is to target inflation. And annual inflation in United Kingdom real estate prices is now slowing far beneath the apparently magic 9% mark...

Whatever econometric model says 9% annual house-price growth is vital to the nation's well-being, the Old Lady has stuck to it since she gained "operational independence" back in May 1997.

And now falling inflation demands a rate cut...if by inflation you mean the decade-long bubble in real estate prices.

Check!

Next up, political pressure. The Bank of England is entirely independent of the elected government, of course, despite the policy team being appointed by the chancellor himself. And yet the Treasury has displayed an uncanny knack for second-guessing how the nine-member committee will vote.

"It has not gone unnoticed that the most successful forecaster of changes in [BoE] policy direction since 1997 has been Mr Ed Balls," as Stephen Lewis at Insinger de Beaufort wrote of the Treasury's chief economic advisor two years ago. "Before each of these events, he pops up on a public platform to approve the shift in advance. His insight into what is supposed to be an independent decision-making process is remarkable."

Fast forward to last month, and Ed Balls – now in charge of education – seems to have retained his magical powers of foresight, revealing live on breakfast TV that "our interest rates are low and are coming down."

Spooky, no?

"The Bank of England has got flexibility," Balls went on. "Inflation is low. We will see what happens in the next few months."

Won't we just! But not before the current chancellor, hapless Alistair Darling himself, sets the stage for a rate-cut, too.

"Because of the fact that we now have low unemployment," said the hopeless one at the end of January, "[and] we've got historically low inflation, low levels of interest rates and mortgage rates, the Monetary Policy Committee has room for maneuver."

Room for maneuver? Put another way – as the only US academic on the Old Lady's team did late last month – "worrying about inflation at this time seems like fiddling while Rome burns.

"The evidence from the housing market, and especially the commercial property market, is worrying," David Blanchflower gushed. "Consumer confidence is low in the UK . Interest rates are restrictive at their current levels and that is why I have been voting for cuts."

Poor Mervyn King! The Old Lady's chief pooh-bah stuck out like a sore thumb by refusing to slash rates when Northern Rock collapsed last summer. He's previously complained that "people in sensitive positions" shouldn't speak out on base-rate policy.

But then, people in sensitive positions are there because they like to decide what happens.

And everyone knows the Bank of England simply MUST cut interest rates...because its sole task is to defend "price stability".

"Mortgage approvals in December at 73,000 were below the lowest point in the 2004-5 housing pause and point to further housing weakness," writes David Smith in the Sunday Times. "Consumers are cautious and so is business. The CBI said January retail trading was the weakest for 15 months. Consumer confidence did not improve as much as it normally does between December and January, and remains weak."

Never mind that a new survey from Citigroup-YouGov says the Great British public now expects inflation to reach 3.3% from the last survey's 2.7% – "well above the 2% official target" as Smith admits.

Rising inflation in the cost of living didn't prevent the Bank of England from cutting interest rates in 2001, 2003 or 2005. Why should the Old Lady break the habit of her (independent) lifetime now?

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Andy R
06 Feb 08, 21:20
Backed into a corner

Room to maneouver? I think not. Suppose we need a rise in interest rates to combat rising import prices - which, for a country with a trade deficit, is an important issue?

Could we don such a thing without invoking agonised screams from homeowners?

And why is inflation considered low? Because, for some perverse reason, house prices are excluded from the quoted value. This despite the fact that a roof to put over one's head is one of the more essential and widespread commodities in life.

The entire concept of the "boom" was misguided - it should have been labeled "the shortage", which it would have been if it had been oil rising rather than house prices


Post Comment

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

Catching a Falling Financial Knife