Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut!
Interest-Rates / UK Interest Rates Nov 02, 2017 - 07:28 PM GMTBy: Nadeem_Walayat
The Bank of England with much forewarning hiked UK interest rates by 100% today, raising the base interest rate from 0.25% to 0.5%. However, before everyone starts to panic that this heralds the start towards of rates rising to pre 2008 levels, instead the reality is that all that the Bank of England has done is to reverse the PANIC BREXIT INTEREST RATE CUT of August 2016. Which had seen the Bank of England cut interest rates to there lowest levels in the Bank of England's 320 year history. Which followed over 7 years of rates being held at 0.5% the duration of which had seen virtually ALL economists reveal the true extent of their ineptitude as they had collectively consistently forecast that UK Interest rates were always just about to head higher, that a a series of rate hikes were always just months away, which not only never materialised but culminated in the reality of a RATE CUT last year!
The base rate graph illustrates one fundamental fact that exposes the Bank of England's propaganda that the clueless economists have once more swallowed hook like and sinker, for today's rate rise has nothing to do with controlling inflation, or any of the other reasons which have spewed from the mouth of Mark Carney today. For what really motivates the Bank of England's interest rates policy is not Inflation or the UK economy for inflation has soared to over 3% which under normal conditions would demand a normalised base interest rate of about 4% to curb. Instead there has only ever been one motivation behind the Bank of England's setting of interest rates at PANIC levels of near 0% which is to generate artificial profits for the Bank of England's banking sector bankster brethren so that they don't go bankrupt, and therefore THAT IS THE PRIMARY MOTIVATION FOR TODAYS MARGINAL INTEREST RATE HIKE that ensures that UK interest rates REMAIN at PANIC LOW LEVELS so as the banks continue to generate artificial profits at the expense of savers who are ALL in receipt of SUB INFLATION interest on their savings.
During much of 2016 the REMAIN establishment had perpetuated propaganda for a series of rate hikes that would follow a a BREXIT vote outcome that was destined to send consumer borrowing rates soaring, which at the time I repeatedly warned was just NOT going to happen for the fundamental reason that BrExit induced uncertainty would make a rate hike LESS likely as the last thing the Bank of England would want to do is to add to market uncertainty i.e. the complete opposite to REMAIN propaganda. In fact I stated that BrExit could even result in a rate CUT as the following excerpt illustrates:
06 Feb 2016 - UK Interest Rates, Economy GDP Forecasts 2016 and 2017
UK Interest Rates Conclusion
Therefore the overwhelming picture is one of the Bank of England continuing to kick the interest rate can down the road for the whole of 2016 and probably for the whole of 2017 too, even if inflation rises to above 2%. Where even a BrExit induced mini-sterling crisis is unlikely to prompt the BoE to shift on UK interest rates. Especially as I expect the UK economy to significantly weaken to an average GDP of 1.6% per annum that compares against BoE expectations of 2.6% per annum.
The bottom line is that a paralysed BoE remains terrified of its banking brethren that could yet go bankrupt again, especially given Britain's continually expanding debt mountain, and thus will only hike rates when it is faced with an even worse crisis. In fact odds probably favour a CUT in interest rates rather than a RISE, maybe even going negative, though negative interest rates just do not work because they act as a tax on the economy instead of a stimulus.
Market Implications
Low borrowing costs and savings interest rates are likely to continue to persist for the next 2 years. Therefore savers should eye fixes of at least 2 years for higher rates. Bank customers also need to be aware that there is a real risk of NEGATIVE interest rates, which means the BANKS will STEAL a percentage of your bank deposits each year. That's right, the banks take your bank deposit, loan it out at 5%, 10%, or 20% and then will CHARGE you for allowing them to do so with your money. If this is not the behaviour of crime syndicate then what is it?
Expect further ongoing weakness for sterling, a trend forecast for which will follow in a separate analysis. Lack of rate hikes and the prospects for further easing are supportive of the stock and housing markets for 2016.
And again the accompanying video analysis:
So instead of raising rates the Bank of England opened the money printing flood gates to further inflate the Banking Sectors artificial profits:
Mark Carney key points concerning interest rates and QE :
"In my view, and I am not pre-judging the views of the other independent Monetary Policy Committee (MPC) members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer,"
"As we have seen elsewhere, if interest rates are too low - or negative - the hit to bank profitability could perversely reduce credit availability or even increase its overall price,"
So my advice to savers and investors at the start of 2016 proved highly prescient that savers should seek to lock into the then higher savings rates being offered ahead of BrExit which since have continued to fall. In fact we have become so conditioned by near zero interest rates that we forget we are living in a time of central bank PANIC, which is what 0.5% interest rates let alone the cut to 0.25% reflected near 8 years of perpetual central bank PANIC!
Nothing illustrates this point than the rates savers were able to secure before the panic cuts in interest rates began as I warned over 7 years ago to lock in rates for as long as possible, several years in fact though not even I foresaw that the panic would still persist near 8 years on!
08 Oct 2008 - UK Interest Rate Forecast 2009
Savers - To reiterate what I have been saying over the last 6 months, savers still have a a golden opportunity to lock in high fixed savings rates which in the UK are above 7% . These rates won't stay around for much longer, were talking perhaps in the days rather than weeks or months. So the time for action is now ! - Yes, banks can go bankrupt but savings are protected which includes accumulated interest. In the UK the protection is for the first £50k per banking group.
And there is even worse to come for savers as my following video on the War on Cash illustrates that the banks are engineering a situation that will allow outright theft of bank customer depositors, NEGATIVE interest rates as recent press stories of HSBC, RBS and Barclays warning business customers that they could be CHARGED INTEREST on CREDIT balances which today's rate cut brings closer to materialising.
So despite the mainstream propaganda media showing happy savers literally dancing and skipping in the wake of today's base rate hike, instead the reality of a stealth theft of the value of savings remains as inflation has soared to over 3%, which means EVERY saver today is having the value of their hard earned savings stolen which today's base rate does little to alter, as it would require a base rate of at least 2% before savings rates would start exceed CPI inflation, let alone the significantly higher RPI.
I will further cover the prospects for what today's marginal rate hike means of means for savers, investors and the UK housing market in my forthcoming in-depth analysis, so ensure you are subscribed to my always free newsletter and youtube channel.
By Nadeem Walayat
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Nadeem Walayat has over 30 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 focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 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
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