5 ms·

Bank of England raises rates to 2.25%, despite likely recession

29 points by 0xedb 4y ago

ID1452319 4y ago
The Bank of England is raising rates to try and dampen demand, meanwhile later today the Government are having a "mini-budget" where they will cut taxes to try and boost demand. Mr Left Hand, may I introduce you to Mr Right Hand.
LatteLazy 4y ago
The UK is basically in the same economic position as the US. Plus we have a currency that's starting to collapse, and spiking energy costs. And serious political issues that will likely become economic issues very soon (starting a trade war because nationalism for instance). And we are much less competitive. The BoE has very few other options at this point.
- spywaregorilla 4y ago
  The lack of energy and weaker currency are such significant detriments that it's probably not safe to say it's in the same economic position to begin with. Very dangerous for europe, but still noteworthy. Countries like China and Russia are in similarly uncomfortable positions and they're LOWERING their interest rates to try and stay afloat.
  - LatteLazy 4y ago
    I think the US has an advantage over the UK because they just get on with it. Energy prices are high? Better explore and find more energy. I think the EU has an advantage over the UK because they plan and regulate. Energy prices too high? Get more nuclear back online, ban public aircon, ask the LHC to close a month earlier than usual. The UK just can't bring itself to do anything, so it throws money at problems. Then the problems get worse. Then it wonders why it has huge debt AND big problems...
    - spywaregorilla 4y ago
      The US has plenty of energy. We're an energy exporter.
- troon-lover 4y ago
- slaw 4y ago
  Inflation in UK is 8.6% while interest rate is 2.25%. Interest rate should be higher than inflation. It is really similar economic position. Government trying to print out of debt. https://en.wikipedia.org/wiki/Taylor_rule https://en.wikipedia.org/wiki/Taylor_rule
  - singron 4y ago
    I don't think the Taylor rule says interest rates should be higher than inflation. It seems like it's dependent on the weights you pick. Historically it's not been true either. If that is some implication of the formula I'm not gleaning, then please spell it out.
  - imtringued 4y ago
    There is a monetary component to inflation and a non monetary component to inflation. If energy prices go up, that doesn't mean the government is doing deficit spending in excess of what the economy can handle, it can mean that OPEC is colluding or an important fossil fuel trade relationship between countries crumbled. That doesn't mean there isn't monetary inflation, surely a positive interest rate is justified for now but I don't think it has to go all the way to 8.6%.
  - birdyrooster 4y ago
    The Fed has stopped reissuing defaulted loans and is removing nearly $100B of liquidity per month. I think more significant than the interest rate is the amount of money being removed from the supply.
- benj111 4y ago
  Well the (likely) recession is due to inflation. Raising interest rates can lower inflation so there is sense from that pov. Although the cause of the inflation is well known so I'm not sure raising interest rates will do much except raise the exchange rate. At the end of the day though, interest rates are low relative to historic norms.
  - LatteLazy 4y ago
    We're going to replace an inflation driven recession with a high interest rate caused recession. I won't pretend I know the difference, but there will be a recession either way. Rising interest rates should help the exchange rate. But it doesn't solve the core issue, it just moves the pain from importers to borrowers. Personally, my own ignorance makes me think that we'd regain productivity if we let the rate fall further (punishing importers, rewarding exporters) rather than increasing rate (punishing borrowers, rewarding lenders). But again, I am no expert and for most people it will make little difference (it just turns inflation of food/fuel prices into inflation of rent/mortgage payments plus a load of job loses). Either way, we're in for a lost decade because we have spend a decade making decisions that cause lost decades...
    - benj111 4y ago
      Well the recession were looking at is mild. So inflation seems to be the bigger danger. Rates were at 0.1% at the start of the year. I'm not sure that's particularly healthy, and they've been at that level since 2008(?) So haven't borrowers and exporters been rewarded enough?
      - nwellnhof 4y ago
        Exactly. Most of the population wouldn't even notice a 1% recession. 10% inflation on the other hand...
      - imtringued 4y ago
        The UK is in a really bad shape. The rest of the EU and the US are doing fine.

29 points by 0xedb 4y ago

The Bank of England is raising rates to try and dampen demand, meanwhile later today the Government are having a "mini-budget" where they will cut taxes to try and boost demand. Mr Left Hand, may I introduce you to Mr Right Hand.

LatteLazy 4y ago

The UK is basically in the same economic position as the US. Plus we have a currency that's starting to collapse, and spiking energy costs. And serious political issues that will likely become economic issues very soon (starting a trade war because nationalism for instance). And we are much less competitive. The BoE has very few other options at this point.

spywaregorilla 4y ago
The lack of energy and weaker currency are such significant detriments that it's probably not safe to say it's in the same economic position to begin with. Very dangerous for europe, but still noteworthy. Countries like China and Russia are in similarly uncomfortable positions and they're LOWERING their interest rates to try and stay afloat.
- LatteLazy 4y ago
  I think the US has an advantage over the UK because they just get on with it. Energy prices are high? Better explore and find more energy. I think the EU has an advantage over the UK because they plan and regulate. Energy prices too high? Get more nuclear back online, ban public aircon, ask the LHC to close a month earlier than usual. The UK just can't bring itself to do anything, so it throws money at problems. Then the problems get worse. Then it wonders why it has huge debt AND big problems...
  - spywaregorilla 4y ago
    The US has plenty of energy. We're an energy exporter.
troon-lover 4y ago
slaw 4y ago
Inflation in UK is 8.6% while interest rate is 2.25%. Interest rate should be higher than inflation. It is really similar economic position. Government trying to print out of debt. https://en.wikipedia.org/wiki/Taylor_rule https://en.wikipedia.org/wiki/Taylor_rule
- singron 4y ago
  I don't think the Taylor rule says interest rates should be higher than inflation. It seems like it's dependent on the weights you pick. Historically it's not been true either. If that is some implication of the formula I'm not gleaning, then please spell it out.
- imtringued 4y ago
  There is a monetary component to inflation and a non monetary component to inflation. If energy prices go up, that doesn't mean the government is doing deficit spending in excess of what the economy can handle, it can mean that OPEC is colluding or an important fossil fuel trade relationship between countries crumbled. That doesn't mean there isn't monetary inflation, surely a positive interest rate is justified for now but I don't think it has to go all the way to 8.6%.
- birdyrooster 4y ago
  The Fed has stopped reissuing defaulted loans and is removing nearly $100B of liquidity per month. I think more significant than the interest rate is the amount of money being removed from the supply.
benj111 4y ago
Well the (likely) recession is due to inflation. Raising interest rates can lower inflation so there is sense from that pov. Although the cause of the inflation is well known so I'm not sure raising interest rates will do much except raise the exchange rate. At the end of the day though, interest rates are low relative to historic norms.
- LatteLazy 4y ago
  We're going to replace an inflation driven recession with a high interest rate caused recession. I won't pretend I know the difference, but there will be a recession either way. Rising interest rates should help the exchange rate. But it doesn't solve the core issue, it just moves the pain from importers to borrowers. Personally, my own ignorance makes me think that we'd regain productivity if we let the rate fall further (punishing importers, rewarding exporters) rather than increasing rate (punishing borrowers, rewarding lenders). But again, I am no expert and for most people it will make little difference (it just turns inflation of food/fuel prices into inflation of rent/mortgage payments plus a load of job loses). Either way, we're in for a lost decade because we have spend a decade making decisions that cause lost decades...
  - benj111 4y ago
    Well the recession were looking at is mild. So inflation seems to be the bigger danger. Rates were at 0.1% at the start of the year. I'm not sure that's particularly healthy, and they've been at that level since 2008(?) So haven't borrowers and exporters been rewarded enough?
    - nwellnhof 4y ago
      Exactly. Most of the population wouldn't even notice a 1% recession. 10% inflation on the other hand...
    - imtringued 4y ago
      The UK is in a really bad shape. The rest of the EU and the US are doing fine.