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BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan, Feb & Mar)

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el_pappje
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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by el_pappje »

Some fair sentiment in terms of wanting to punish the irresponsible....but there are a couple of pertinent things:

Firstly, from a historical perspective, faced with such a severe economic contraction the bailout has always occurred. For right or for wrong, the attempt to avoid the worst-case scenario will always win the day, regardless of the risks ["moral hazard"] it stores up for afterwards.

Secondly, and crucial in the current situation, is that current policy isn't about bailing the 25% of the population with mortgages at the expense of the 75% without. It has gone far, far beyond that. It is about trying to force as much liquidity ie cash into the system. Rates may drop to 0.5% or even near-zero as per the US, but the next major step is, as Mervyn King announced, "quantitative easing" or the direct injection of liquidity by buying government bonds.

There are plenty of sensible, prudent individuals, families and businesses who are being starved of legitimate funds because of the financing crisis. It is imperative that money gets lent to them or the entire economy will grind to a complete halt, and that will be very, very ugly indeed.

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by scarletjim »

But the whole principle of lowering interest rates to such a ridiculous level in order to encourage us to 'spend our way out of recession' is so obviously flawed. Amongst other flaws, it will obviously encourage people borrow and spend, and those with a past tendency to over-borrow will end up in a worse rather than better situation (and so perhaps require more bailing out :roll: ).

I believe the end result of this policy will be to 'postpone but eventually prolong' the hard times, instead of gritting our teeth and accepting the hard times ahead without ultimately making them worse. I don't pretend to know a huge amount about economics, but I do know that there are a lot of other economic analysts who agree with the view I'm expressing here, and agree that 'spending our way out' is a very dangerous and flawed concept.

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by el_pappje »

One other point to bear in mind about the use of interest rate cuts - inflation has plummeted [remember those stagflation fears last summer?], and there is a real fear of deflation taking hold, so stimulus is required to offset that. It's not simply about bailing out over-indebted consumers.

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by jacksosi »

I have sympathy for all those with big mortgages who then get made redundant and end up in negative equity, what a nightmare.

I was really thinking of spending everything to move and get a flat in London a year ago, I would be gutted now! It all seemed a one way bet at the time, and people at work who lived in London were making ridiculous paper sums...

As for whether the rate cuts are helping I am not sure, many/most will be doing what I am doing and investing the difference/overpaying on the mortgage, so not actually spending any of it.

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by Groomyd »

jacksosi wrote: As for whether the rate cuts are helping I am not sure, many/most will be doing what I am doing and investing the difference/overpaying on the mortgage, so not actually spending any of it.
Spot on.

Mate of mine was made redundant last week after 25 years. Minimum redundancy of £350 a week per year of service. Big mortgage.

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by el_pappje »

The scary view? See this link:

http://www.washingtonpost.com/wp-dyn/co ... 01180.html" onclick="window.open(this.href);return false;
Geithner had come to the conclusion that the strategies he and his team had spent weeks working on were too expensive, too complex and too risky for taxpayers.
The view in the markets is that essentially this means the political will is not yet there in the US to take the dramatic steps required to rescue a global banking system that is essentially bust. American politicians react to Wall Street. If the stock markets look to be stabilising/recovering, this therefore means things are working. If markets plunge, something needs done. It is that depressingly binary. This is why the original TARP got passed in a hurry when the original rejection saw the highest ever Dow Jones points plunge [albeit not in % terms].

So the upshot is that some people reckon the global stock markets need to tank again before the US politicans wake up and smell the salt - and the other global policymakers do too. Meanwhile, Japan, whose economy is half the size of the US ie pretty bloody big, is collapsing at an unprecedented rate. It is worsened by the strength of the yen, but the Q4 GDP print was something like -15%. That is a catastrophic number.

The game for 2009 is keeping your job. End of!

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by uncsi »

scarletjim wrote:But the whole principle of lowering interest rates to such a ridiculous level in order to encourage us to 'spend our way out of recession' is so obviously flawed. Amongst other flaws, it will obviously encourage people borrow and spend, and those with a past tendency to over-borrow will end up in a worse rather than better situation (and so perhaps require more bailing out :roll: ).

I believe the end result of this policy will be to 'postpone but eventually prolong' the hard times, instead of gritting our teeth and accepting the hard times ahead without ultimately making them worse. I don't pretend to know a huge amount about economics, but I do know that there are a lot of other economic analysts who agree with the view I'm expressing here, and agree that 'spending our way out' is a very dangerous and flawed concept.
Don't think too many people will have the opportunity to overborrow at the moment, as banks aren't lending a lot out.

Low interest rates won't cure everything, but they do help people who are facing big mortgages and falling house prices. Yes, a lot of people will overpay on mortgages, but that will help when the recovery comes as they will have smaller mortgages and more disposable income. Lower interest rates might not stimulate much spending, but they are likely to slow down the reduction in spending. Without the cuts people would cut back on spending even more.

It's not just about individuals either - rate cuts help businesses (ok - most lending is now fixed to LIBOR, but LIBOR also tracks down when base rates are cut).

The treasury doesn't have all that many tools to help - interest rates, tax rates and public spending are the 3 main tools at their disposal.

The cessation of lending means much less money in the system (what economists term velocity of money is reducing, i.e. money is flowing around the system more slowly) which means reduced inflation or even deflation. Deflation is the real killer - basically it would put a lot more jobs at risk.

Reducing interest rates doesn't really hurt anyone (except pensioners), but the treasury's gone as far as they can with that policy now - the marginal impact of further rates would be minimal IMO.

The other key policy tools would be increased public spending or tax cuts. Those 2 are obviously in conflict and can only happen in concert if the Government borrow more money (by issuing government securities). Ultimately that means that tax rates would have to increase in the future (or public spending cut) so it's a less preferable route than the monetarist route of cutting interest rates as it generally means a slower recovery.

As has been said before, the key priority has to be getting the banking system working again. A properly functioning banking system is the 'fresh water' or 'electricity' of the economy. Companies can't survive without debt being available.

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by SunderlandFan »

I need one of you brainy finance types to explain to me what's going on with HSBC. Is it safe for me to keep my money there or should I be investing it somewhere else?

Thanks!

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by Dot »

Groomyd wrote:
jacksosi wrote: As for whether the rate cuts are helping I am not sure, many/most will be doing what I am doing and investing the difference/overpaying on the mortgage, so not actually spending any of it.
Spot on.

Mate of mine was made redundant last week after 25 years. Minimum redundancy of £350 a week per year of service. Big mortgage.
Wrong thats the MAXIMUM amount .
Statutory Redundancy Pay Table
To calculate the number of weeks redundancy pay, cross reference the person's age and years of service and then multiply that number by the weekly salary (maximum weekly salary is £350 ). E.g. a person with a salary of £200 aged 22 with 4 years of service will be entitled to two weeks salary e.g. a total redundancy of £400.


the maximum you can receive tax free is also only 30 grand anything over is taxable.

Of course there are exceptions mainly in the financial world
Most banks still give a minimum of one months salary per year as opposed to the national maximum set as above and in many instances even better than one month.

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by murf »

SunderlandFan wrote:I need one of you brainy finance types to explain to me what's going on with HSBC. Is it safe for me to keep my money there or should I be investing it somewhere else?

Thanks!
They just reported a profit albeit a reduced one. All safe as far as I can see (my money or, more accurately, mortgage is with an HSBC company) but I'm not a brainy financial type.

Us over here have a large amount of savings guaranteed if they went bang not sure if that applies to you yanks.

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by Knulpuk »

HSBC bought a company called Household International in 2002.

It was full of US subprime mortgages and yesterday it admitted (very frankly) that it had lost around $15bn on the book.

Its looking to raise another $18bn but there is some concern that this could just be absorbed by further Household International losses rather than being used to bolster its capital base (which is what it claims the cash is for).

Of all the big UK Bank HSBC is thought to be in the best position (that's a relative thing of course) and who knows what's round the corner.

The 1st £50k of your savings should be safe - If you meant I have money invested in HSBC shares - well that's a different matter - I have no idea.

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by uncsi »

If you've got significant amounts of cash to invest, then definitely spread it around a bit. Treasury bonds, bank accounts, gold all worth looking into (although I'm by no means an expert on investment so best look elsewhere for specific advice).

unlikely that a major UK bank would be allowed to go bust, but worth having less than £50k in each to be safe (check who owns who though, and the £50k may have gone up to £75k - lost track tbh. I'd also check whether the Gov't guaranteed amount applies to all or whether you have to be a UK resident as well).

US banking system is alien to me, apart from I believe that it's more complex / fragmented than the UK. I do know that during the great depression banks were going bust at a frightening rate in the US - can't remember the figure but sure it was at a rate of in excess of 100 per month at its peak. I presume that the system has changed somewhat since 1929 though :lol:

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by SunderlandFan »

Thanks for the advice guys. I'm going to hire an accountant to look into this for me, it all seems a bit confusing being a UK citizen in the US with money in banks from both countries.

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by Knulpuk »

Sorry I did not know you were in the US - yes that muddies the water a bit - not sure my £50k comment is correct now - I am out of my element.

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by uncsi »

SunderlandFan wrote:Thanks for the advice guys. I'm going to hire an accountant to look into this for me, it all seems a bit confusing being a UK citizen in the US with money in banks from both countries.
Probably worth talking to an accountant anyway as the tax rules surrounding domicile, residence etc can be fairly complex. An accountant may not be licenced to give investment advice though - (you'd want an IFA for that - many accountants do have in house IFA's as well though), although again not sure what the situation in the US is.

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by Knulpuk »

Interest rates now at 0.5%

So that will be a 0.78% mortgage then 8-)

Gotta be happy with that

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by Papa Giddy »

8-)

Excellent.

Not unexpected but I'll happily take that.... now if they could just decide to give everyone 3,000 quid for this quantative easing rather than buying bonds and we'd be laughing!

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by murf »

Knulpuk wrote:Interest rates now at 0.5%

So that will be a 0.78% mortgage then 8-)

Gotta be happy with that
Mine is nearly double that!!!!! :evil:

:wink:

:lol: :lol: :lol: 1.5% mortgage :lol: a quarter of what it used to be :lol: I'm laughing :lol: :lol: :lol:

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan, Feb & Mar)

Post by djnuttie »

My fixed rate mortgage with Northern Rock ended last summer and because I was too lazy to sort out a new one I was moved onto their relatively 'poor' Standard Variable Rate indefinately.

I've been waiting until the rate cuts reach rock bottom and Banks have passed on as much as they are willing too.

Is now the right time for me to sort out a new long term fixed deal?

:?

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Re: BOE cuts 1.5% (Nov) and now 1% (Dec)

Post by Darbyand »

Surprised wrote:
Darbyand wrote:
Spencer4 wrote:Happy days... 1.93% mortgage for the basket 8-)

" Nationwide has made a U-turn and scrapped its 2.75 per cent tracker collar.
Happy days indeed AND Zaki is back. Now if I can just stop re-reading surprised's posts I can believe that all is well with the world :lol:
Hey.......being pessimistic means everything always turns out better than you think :D
I see your mood hasn't improved Mr Meldrew! :wink:

viewtopic.php?f=90&t=58909&start=4" onclick="window.open(this.href);return false;

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan, Feb & Mar)

Post by jacksosi »

djnuttie wrote:My fixed rate mortgage with Northern Rock ended last summer and because I was too lazy to sort out a new one I was moved onto their relatively 'poor' Standard Variable Rate indefinately.

I've been waiting until the rate cuts reach rock bottom and Banks have passed on as much as they are willing too.

Is now the right time for me to sort out a new long term fixed deal?

:?
So what did you do?

I am with N'Rock too, and my current deal expires on 1/12/09. I think that you can reserve a mortgage rate up to 6 months before needing it, so I am starting to look now.

I have seen 4.89% fixed for 5 years with NatWest (prefer longer fixes if going down that road as is avoids the cost/hassle of remortgaging every 2 years, esp. with fees so high currently).

BUT, that still seems very high to me with so many low trackers about.

I have seen 2.39% with Co-Op, 3 year tracker.

Now everyone is saying fix your rate in now as rates are the lowest ever etc., but the whole time I have been on my current 7 year cap at 5.19%, longer term fixed rates have not moved far above that rate.

Even with base rates at 0.5% the rates are still about 5%. So in the same way fixed rates have not come down significantly with base rate reductions, they may not rise significantly with base rate rises.

Therefore, I think I am going to take the tracker, hope that on average over the 3 years the base rate does not go over 3% (which gets me back to the 4.89% if it does). By the time my 3 years is up, perhaps fixed offer rates will still be the same at around 5% as the availabilty of funds and competition may have returned, and it does seem to be their approximate 'level'.

Short term I will be making a big saving which I can overpay or probably invest in an ISA, and on balance I think this is more likely to win out.

Thoughts anyone?

In fact, new thread for this : Mortgage Renewal Thread

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan and Feb)

Post by murf »

Knulpuk wrote:Interest rates now at 0.5%

So that will be a 0.78% mortgage then 8-)

Gotta be happy with that
Another month at 0.5%

Thats 18 months now :D

http://www.bbc.co.uk/news/business-10880944" onclick="window.open(this.href);return false;

(I'm overpaying nicely (by 600+/month) but my mortgage still looks scarily big!)

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan, Feb & Mar)

Post by Knulpuk »

Not been overpaying anything - just putting into savings accounts as long as they pay more than 1.3% its not worth paying off the mortgage can earn more elsewhere.

Looks like the market is factoring in a .25% raise next quarter.

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan, Feb & Mar)

Post by Knulpuk »

Looks like the 0.5% will now pass the 2 year anniversary with today's decision to keep rates unchanged - be interesting to see how the voting went.....2 years at a 0.78% mortgage - from a personal point of view - long may it continue!

:D

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan, Feb & Mar)

Post by murf »

I think 2 or 3 (of 9?) voted to raise it last month. It was expected to be more this month but unlikely to be enough.

It will rise a bit soon but it won't shoot up so I'm not concerned from my selfish (base + 1) POV. Long may the low rates continue!

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan, Feb & Mar)

Post by Grant »

2 out of 9 again this time, with 1 wanting more QE. All good news, keep those rates low.

http://www.bbc.co.uk/news/business-12413773" onclick="window.open(this.href);return false;

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan, Feb & Mar)

Post by murf »

Grant wrote:2 out of 9 again this time, with 1 wanting more QE. All good news, keep those rates low.

http://www.bbc.co.uk/news/business-12413773" onclick="window.open(this.href);return false;
No, the 2 out of 9 etc relates to last month's meeting.

You only find out the voting numbers a week or two after the event (from memory)

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan, Feb & Mar)

Post by Grant »

murf wrote: No, the 2 out of 9 etc relates to last month's meeting.

You only find out the voting numbers a week or two after the event (from memory)
You are very right, serves me right for quickly skim reading!

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan, Feb & Mar)

Post by murf »

The votes are in...

Only 1 extra member voted to increase rates so it was 6-3 to keep it at 0.5%

The Bank's deputy governor Paul Tucker made a rare public statement on monetary policy on Tuesday, saying the MPC faced a "real dilemma" over whether to raise interest rates in the next few months.

http://www.bbc.co.uk/news/business-12549850" onclick="window.open(this.href);return false;

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Re: BOE cuts 1.5% (Nov), 1% (Dec) and 0.5% (Jan, Feb & Mar)

Post by Beerfuelledman »

As a financial imbecile, do I stay on the base rate or seek a mortgage deal now or later?

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