Next recession?

[Neelix]

FWIW most of the inflation now has been created by the printing of money by the central banks.

Inflation rising has been talked about for a few years and finally its hit the developed countries.

creating money out of thin air was never going be at no cost

[gnvqsos]

It is quire acceptable to expand the supply of money in harmony with expanding economic activity, but if the expansion of money is too quick inflation is likely.. However the principal cause of inflation is increasing commodity prices(gas ,fertilisers, grain) and an expanding money supply accommodates the inflation that ensues-it does not cause it. This is the difference between the simplistic Friedman and the sophisticated Keynes. A long piece of string accommodates the elevation of a kite BUT does not cause it. You cannot push on string!

[Gordon999]

If the supply of money is expanded by holding down interest rates to below 0.1% for over 12 years after 2008 financial crisis , the economy is bound to be hit by surging inflation.

Rising prices hit the pensioners much harder because their savings money put away over 30 years, are worth less and buy less. The BOE has been applying the wrong policy to interest rates.

[leasee123]

Gordon999,

That would be true if the supply of money increased in the real economy (by what I presume you mean QE). But it never. It only really stayed within the banking system and perhaps into financial assets.

So we never saw surging inflation or a boost in economic growth. Today we are seeing inflation as a result of the supply chain disruption as a result of COVID and the war and also the large fiscal support following COVID.

There are signs that inflation is peaking now.

Pensioners might suffer from inflation but it is debatable that they suffer more than anyone else. They do usually have state pensions that are linked tightly to inflation.

[humptydumpty]

Apologies for repeating myself, but I had a large mortgage on 15th November 1979 under Thatcher when BoE base rate hit 17%. See
https://www.bankofengland.co.uk/boea.../Bank-Rate.asp


That was painful, even with two salaries coming in. I was lucky: My building society only increased interest rates to 15%....

It will, or something similar, happen again!

Hope I'm wrong, but I doubt it....

I think 6% would already be too much for the average home on a variable and there's 2 mil of them. And the misery would become exponential as fixed deals expire?

[humptydumpty]

What was the point of that? Inflation is forecast to hit 10% and they raise it by a paltry 0.25%. Perhaps it's time rates weren't kept artifically low.
Not sure why it would take 18 years to pay back a mortgage at 4-5%. When rates were 15% i took my first mortgage over a 12 year term and paid it off in less (lots of overtime and belt tightening) .

Out of curiosity what was your net household in money? In 1995 I could buy a 3 bed house a year with my net. Now I can't buy one in 5 years. 1% increase on these extended numbers is exponentially crippling and has a massive effect on variables, and all kinds of other loan instruments which slows spending.

I think 1% interest is not enough to encourage savings in the bank account.

Nobody talks about "saving money" since the last financial crisis in 2008.

Nailed, a thing of the past. The opposite in fact, we panic about the devaluation in our account which is driving the stock market and housing silly. Though America appears to be cooling.

Furthermore:

We are heading into what I believe is a disaster from all angles:

- Food inflation/fuel/energy out of control - you only have to read how NHS nurses use food banks if they are single mums for example. The average sensible sized family of 5-6 home is going to be £500 a month for gas and electric if that recent announcement on MSE is right later this year.
- Building material inflation is out of control - my raw materials are up as much as double since lockdown and at least 50% if not double.
- Rising rates on over extended borrowing is all but guaranteed for the 2 mil variables and trackers based on inflation being curbed by rate rises to match US.
- House prices being quoted higher sale by sale down the same roads as we speak! The 'default' agents go to in my area now for a 3 bed with a drive is up 15% on last year and in one area as much as 25% where a school recently obtained outstanding offstead!!! As yet, no end in sight. As you can imagine the locals feel extreme jealous with the DFL buyers.
- America capitulated and we followed them into a crash 18 months or so later back in 08.

In short cost of living is stripping borrowing power, rate rises will super charge that, and renovation projects are getting more unaffordable/less worthwhile. For the first time in longer than I can remember, a couple of half finished projects have hit the auction. One of these half finished, the chap has put back up at similar price he paid last year as reserve, clearly just wants out...

So does that mean our trigger will be America crashing? Or will we make this a self fulfilling prophecy fear mongering ourselves and all panic selling? Or just go stagnant for a decade to let income catch up and debt lower?

If you look at rightmove the number of reduced prices are properly on the up (my area I speak for down south). I've never had so many alerts pop up on my email matching my criteria but the prices are still way higher than last year.

There are already some cracking BTL block of flats with sensible yields (AT CURRENT BORROWING COSTS) coming on the market. These would be a death sentence I feel for me even if I did take a 5 year fixed (which may not be long enough) to ride out the storm I think is coming.

Head vs Heart

[Gordon999]

Yesterday, due to concerns for rising inflation , Bank of Canada raised interest rate by 1% to 2.5%.

[leasee123]

FWIW most of the inflation now has been created by the printing of money by the central banks.

Inflation rising has been talked about for a few years and finally its hit the developed countries.

creating money out of thin air was never going be at no cost

Central banks don't really print money the way you think it does. Current high inflation is entirely explained by supply chain issues (including war related) and the fiscal stimulus package. All are temporary.

Central banks had nothing to do with it.

[leasee123]

Remember, inflation is a lagging indicator. So the high levels you see now are past data of prices. There are many leading indicators pointing to sharply lower inflation in the next year or less. Coinciding with potentially a very nasty recession.

There is a lot of misinformation by the general public and this forum thread is just an example. Most people just don't understand how economies work and end up reading nonsense from the daily mail and such other crap.

[SouthernDave]

All news is rubbish. I havnt bought a news paper in 10 years.

[loanarranger]

The following emanates from HMRC, makes interesting reading and given the real prospect of even higher mortgage rates I suspect the immediate future could become problematic for both buyers and distressed sellers.

”HMRC’s seasonally adjusted estimate of UK non-residential transactions in June 2022 is 9,110, 21.9% lower than June 2021 and 11.6% lower than May 2022.

Charlotte Nixon, mortgage spokesperson at Quilter, said: “UK monthly property transactions have slowed dramatically in comparison to the rapid pace witnessed in June last year when the first stage of the stamp duty holiday was withdrawn, and they now sit even lower than pre-pandemic levels. With the cost-of-living crisis now weighing heavily on people’s finances, we may be witnessing the start of the long-awaited slowdown.

“The adjusted estimate of UK residential transactions in June is 95,420, 54.3% lower than June 2021 and 7.9% lower than May 2022. In comparison to pre-pandemic levels, June 2022 saw transactions dip below 100,000 for the first time since June 2013 – excluding the 2020 anomaly – suggesting the wind has finally been knocked out of the sails of the housing market.

“A dip in the market has been anticipated for a long while now, with those hoping to get a foot on the ladder holding out for a subsequent fall in house prices. Up until now the major global events we have experienced in recent times have done little to stunt its progress and the market continually defied expectations with growing prices and sky-high transaction levels. However, the cost-of-living crisis appears to have finally taken its toll and this month’s fall in property transactions could mark the beginning of the end for the rampant market environment we have seen for the past couple of years.

“With inflation now sitting at 9.4%, the Bank of England is expected to hike rates further at its next monetary policy meeting which will push mortgage rates even higher than their already elevated state. Soaring inflation, the rising cost of living, high energy bills which will increase even further later in the year and minimal government support mean the cost-of-living crisis has fast become a major financial burden for many people. With wages failing to keep up, the high costs of moving home will put off prospective buyers and we could see an even greater slowdown in the coming months.

“The UK continues to face a severe financial problem and the housing market faces its biggest challenge yet as the cost-of-living crisis takes hold.”

[Gordon999]

Today BOE raise the interest rate from 1.25% to 1.75%. This remains too low compared to inflation rising over 9%

The Bank claims it is targeting UK annual inflation to fall back from 9% to 2% , but it won't happen when the interest rate stands at 1.75%.

The low interest rate keeps the GBP v. USD exchange rate down , which means imports cost more.

[Gordon999]

Mr Andrew Bailey, Governor BOE has forecast the inflation reaching 13 % by year end and UK economy will be in recession for the next 5 quarters

[gnvqsos]

Mr Andrew Bailey, Governor BOE has forecast the inflation reaching 13 % by year end and UK economy will be in recession for the next 5 quarters

No reason to doubt this prediction-unless the Liz Truss tax cuts work miracles.

[jpkeates]

It's going to be interesting to see what Liz Truss actually does (assuming she'd going to walk this party leadership contest).
These policy proposals are aimed at the voters.

But tax cuts don't help poorer people unless they're massive.
Not sure it's possible to cut tax deep enough to compensate for the increased cost of power and fuel for most people.