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Will they raise the base rate? Part 1

By Andy Shaw | January 23, 2010

Originally posted 2nd July 2008

There’s a hell of a lot of chat about interest rates this week. I’m left undecided as to which way they are going to go, but my best guess is at the bottom. I think there are a lot of factors to take into consideration. Before I go into them though I think that raising rates at a quick pace without waiting to see the effects of previous interest rate rises is foolhardy.

But then I am only speaking from the position of the property investor, and I have a vested interest in the rates staying low. Well actually that’s not entirely true either as if the rates go up, I have to pay more (and when you own as many properties as I do, it’s quite a lot :-) ), but equally the unrest in the market offers me more deals, and at this time of year an interest rate rise or even two could really help me acquire quite a few properties throughout the summer.

I’m personally looking at things from a way off perspective and I think there is a lot more going on than meets the eye. If I was Gordon Brown, what I’d be thinking was, how can I stamp my authority on this role, give people a boost to make them feel good and then get down to a quick election before David Cameron starts to make it too difficult for me to win.

So the last thing I’d want after coming to power was an interest rate rise in my first full week as PM. Furthermore, with the country feeling in their pocket another one or possibly two rate rises after that before I had a chance to get elected next May. I would be thinking, ‘cor I wish I had some influence on the bank base rate, so that I could keep it down for a while!’

Then I’d also be thinking, if we can keep rates down and more inline with Europe then in about 2 years time the economic conditions could be just right for us joining the Euro. A quick election in May 08 followed by a sustained PR campaign and also hopefully avoiding a referendum then I could be the PM who introduced the Euro.

Don’t misunderstand me I’m neither for or against the Euro at the moment as I haven’t fully evaluated the impact of it, I think long term it would be very beneficial but it’s the damage it will cause in the process that worries me.

I saw on the news this morning that Business was calling for no rate rise this month as the economy is suffering because of the recent rate rises. Home loans were down apparently last month as well, and I think there are distinct signs that all the recent rate rises are having an effect on the economy. However, I think the desired result they wanted which was also to cut further house price inflation is something a little too tricky for just a few rate rises to solve.

The trouble is that I think they are viewing house price inflation the wrong way, and as such they are mistakenly calling normal growth a boom.

In conclusion I think that the PM’s recent ascension to the throne will be just the tipping point needed to keep rates on hold this month, and a chance for the BOE to see some more of the effect that recent rises have had on the economy.

Best Wishes


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Topics: Free Content, Government, Property, The Economy | Comments Off

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