Reply With QuoteI can unfortunately see some big unemployment rises over the next year in order tame inflation.
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Oh well I did say, and I have no idea why commentators in the media expected another small rise of 0.25%. Interest rates are still below the rate of inflation meaning interest rate policy is still too loose, and I predicted that rates will need to be more aggressive and get to a minimum of 5.5-6% before we will see things working. Why many experts thought 4-5% was adequate for this year is quite beyond me. Well here we are - an aggressive 0.5% rise to 5%. Still not aggressive enough to fix the problem in my book, but at least they recognised that 0.25% would have the effect of peeing in the Atlantic.
That was before we saw the higher than expected inflation numbers this week, staying around 8.5% mark. If this inflation number does not drop we may need to see 6.5-8% interest rates over the next twelve months until it works and inflation drops to 2-3%. Given that mortgage rates are driven off swap rates (1-2% spread) and swap rates of interest rates, I think 2-3 year fixed rate mortgages could be 7-9% by year end unless the inflation rate drops.
In the 1990s Norman Lamont was insensitive, but quite correct to say that “If it isn’t hurting it isn’t working”. An awful choice of words, but it proved to be prescient. Until that inflation rate drops below the interest rate ls, or start to come down quick enough, interest rates will keep going north.
The IMF, Treasury, central banks and so called experts have got this wrong all the way. It shows how poor they are. Get a PhD out of academia and straight into an institution. No markets experience at all, or working with money. Just old bunk textbooks that are past their sell by date. In the City of London the truth is that traders and hedge funds have skin in the game and money on the line. They can’t afford to mix social policy and politics with economics and the subjects are best kept apart, or they will get their trading and investments wrong and lose money. The academic economists in institutions such as the OECD, IMF and Treasury mix it with social policy concerns and politics - they can bark off as much as they want an produce reams and reams of “papers” and “publications” that most traders see as free toilet paper. Only the economists employed by hedge funds and investment banks have papers read by traders, and even then they are often treated with an air of scepticism. If academics get forecasts wrong who cares? Jobs are protected and they often move into politics like Rachel Reeves. Get it wrong in a bank, a trading floor or a hedge fund and you get sacked or moved on. No room for error. The media is also all over the place in its commentary and don’t seem to have the practical knowledge nor tools to make sense of what is happening.
As I have highlighted in the threads below the stock market and cyclical industries such as construction, residential and commercial real estate, chemicals sector and estate agents stocks would take a hit. Today it proved to be the case again, looking at the sector charts for the FTSE. Unfortunately, more pain to come.
There seems to be one person that stands out to me that understands what is going on, and I took the hint from her speech this week. She has warned for ages and she has been spot on. Catherine Mann. Old school. Grey hairs. Like Eddie George and Mervyn King - a proper central banker. She isn’t one of these modern plebs who thinks an econometric spreadsheet holds the answers. She goes on history and a monetarist and markets understanding of what was required. Follow her words and she will be a good forecasts as to what is happening. Disciplined, clever and tough character. Watch her words closely as her words have been the best predictor of what the Monetary Policy Committee will do in the last twelve months.
This pain will continue for another 6-18 months as far as I can see. Stick that prediction on a bookmark. Tinhats on please. As they say in boxing, “Gloves up, and protect yourself at all times”.
https://www.ccmb.co.uk/showthread.ph...t-8-7-per-cent
https://www.ccmb.co.uk/showthread.ph...g-of-economics
https://www.ccmb.co.uk/showthread.ph...e-naffed/page3
I can unfortunately see some big unemployment rises over the next year in order tame inflation.
Supermarkets and energy companies were buying on forward pricing so the reduction in energy and food isn't showing yet but it will, inflation is definitely sticky compared to the rest of the World.Originally Posted by Keyser Soze
Interest rate rises don't slow economies as much as they used to because it only affects a proportion of the population, but it is horrendous for them, they'll have to come up with some new ideas.
Times are tough here, but so bad in the US and even Europe, inflation is already lower.
The Nasdaq has been flying, and European markets have had a fairly good year.
that Tory bellend John Redwood was just on the radio talking about it , was saying that the inflation has been blamed on the Ukraine war but really the main driver was far too much quantative easing following COVID. countries that didn't do as much back then are seeing much lower inflation now.
Spot on. Once we hit a recession, US unemployment never stays below 5%. That is a statistic from 60 years of history. You may argue an exception for CoVid but if you include furloughed people, which what happens in a natural recession, the figure would have exceeded 5% in the UK and US too.
There will be no furlough this time nor bank bailouts. We will certainly see a doubling of unemployment above 5%. Of that I have zero doubt.
To a degree he is correct. The effect of QE was several:
1. Inflated prices of bonds, stocks, real estate (commercial and residential, Private Equity and Venture Capital. This gave the illusion of wealth. Unless sold, it was market rise not a real profit
2. Bonds cheapened the credit markets. Made credit cheap so all the above sectors borrowed to the hilt
3. Consumers were duped into think these were normal interest rates at 0.5%-2%. They were temporary, manipulated and was not sustainable. The average UK interest rate in history is 5%.
But now asset prices must reduce (killing confidence) and debt loads at government and commercial levels are huge. Debts will mature / rollover at prices 5-10 times higher. This is the lag effect most are missing. What we are seeing for residential mortgages in terms of pain will be chicken feed compared to business.
The US are ahead of us in the interest rate cycle so the lag effects are just coming through. Google what is happening to
commerciap real estate in San Francisco and New York. San Francisco is a proper mess. It is just kicking off in London. London starts, the rest of UK cities will follow.
That isn’t where the Monetary Policy Committee is fixated my
friend. Excerpt from today’s Financial Times…
In the minutes of the MPC meeting, the seven members who voted for the large increase pointed in particular to inflation data and labour market figures over the past six weeks, which had been significantly worse than they had predicted in early May.
Without updating those forecasts, the MPC minutes said annual private sector regular pay growth of 7.6 per cent in the three months to April was 0.5 percentage points higher than they had expected. Services inflation of 7.4 per cent in May was also half a percentage point higher than the bank’s models had predicted.
That should slow residential house prices now, people will stick a bit longer and see what happens, we've been here before we'll be here again, it's not bad for potential first-time buyers that aren't renting if values drop a bit, if they time it right they could do OK.
Unemployment will go up with people unretiring too, things have changed a lot for some of those late fifties and early sixties retirees, in the last two years.
Traditionally inflation is high because the average person is spending a lot on goods and services. This time it's due to Brexit, the war in ukraine, the pandemic and greed from many companies earning record profits. Increasing interest rates will not do a thing to combat it.
Yep, Brexit has certainly driven inflation here in the US…
So does Brexit not make it more expensive to import goods into the UK?
I wonder if the rate of new billionaires in the UK will decline?
I agree that Brexit has made inflation in the UK worse than it would have been but there is global inflation and probably recession… that hasn’t been caused by Brexit.
Did I say brexit was the sole cause?
No you didn’t you quite correctly stated that The Pandemic and The War are factors.
My point is that I don’t believe that Brexit is a driver of Global inflation even if it is making things worse than it is for some but not all EU countries.
there isn't global inflation, inflation in China is 0.2%
You implied it as it fits your agenda.
Brexit is a minor contributor to the grand scale of things, it's the global economy settling after the Covid disruption mainly then added to by the War in Ukraine and the energy crisis.
Multiple other factors like profiteering and wage inflation have also added to a perfect storm, I think you are right about interest rate increase not being enough to cool things down on their own, but at least people have woken up to the issue now, which should create a bit of fear and lead to a slight reduction in spending on luxuries for some.
True.
Could China be on the verge of deflation?
You don't single out one odd Country when you talk about the global economies.
Oh ok, I'll be careful not to say the truth incase it upsets you from now on.
It's not the truth though is it, you look to blame everything on Brexit.
If Labour hadn't tried to stop it for so long and liaised with the opposition, it would have worked a lot better as we ould have been able to play hard ball and fight for a fairer deal.
just repeating what John Redwood was saying this morning, he said basically the only countries struggling with inflation at the moment are ones who went too far with QE in the aftermath of covid. it was blamed on Ukraine, but it largely isn't anything to do with that
what utter shit, what meaningful opposition did labour put up to Brexit? even if they had the Tories have a massive majority.
do you actually believe this nonsense?
It is true though, brexit has contributed to inflation in the UK.
Oh right, the failure of brexit is the fault of the party who aren't in power.
I give you a gold medal for this incredible feat of mental gymnastics.
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