I predict that interest rates will rise

It’s the old joke:

Patient to GP: “Am I going to die?”

Doctor: “Yes, the question you are asking me is ‘when’?”

The journey of UK interest rates is also like a pantomime:

“I predict that interest rates will rise.”

“Oh yes they will”

“Oh no they won’t.”

The Governor of the Bank of England has said, under his policy of ‘forward guidance’, that rates will not rise until the unemployment rate falls to 7% or below.

“Oh yes they will.”

They might because the Governor hasn’t said that as a pledge. It’s an aspirational vision. Within the small print are lots of get-outs including the outlook for inflation and financial stability. Mr. Carney can do what he likes using one of his caveats: nobody will care except for Ed Balls who nobody listens to.

The Bank of England figures, which are hopelessly unreliable, as recently as February 2013 said that GDP growth would average less than 1% this year. It said it would not rise to 2% until 2016. GDP is now 1.4% and predicted to reach 2.4% in 2014. The CBI thinks it will be 2.5% in 2014.

“Oh no they won’t.”

If you’re not, you should be watching US oil prices which are reflecting the impact of the shale revolution. Lows of $91.65 a barrel are being seen in America as Brent prices fall to $105.23. The lack of US demand for Middle East oil supplies is putting pressure on OPEC members. Some want to up prices by restricting drilling to maximise revenues while they can. Others want as much money now and the future can look after itself. The US can only export oil to Canada. If they change this restriction all bets are off.

It took about a year (2008 – 2009) for interest rates to fall from 5% to 0.5%.

Where will they be in twelve months time? No idea…and nor has Mr. Carney.

1 comment for “I predict that interest rates will rise

  1. John
    15 November, 2013 at 11:18

    Momentum in the economy is building strongly – having staved off what could have been a melt down, I’m pretty sure that UK authorities will be wrestling to exert what limited influence they will have on market forces.

    Economists can pontificate but others have to take action and be held to account when they get it wrong.

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