The Bank of England’s recent decision to raise interest rates came as a surprise to those of us who believe the Bank’s remit is purely to control inflation.

With inflation running at barely over 1% and a target set of 2.0% it’s hard to see the justification for the rise.

The Bank replied by saying that strong inflationary pressures were being bought to bear and higher rates were necessary now in order to control inflation in the future. I hope they are right.

What I find most amusing is that if inflation falls any lower, the Bank will be obliged under its remit to write to the Chancellor explaining why it has failed to meet the objectives laid down by the Treasury.

If this were to happen, would the Chancellor instruct the Bank to reduce rates in order to achieve its 2% inflation target? I suspect not!

What a hoot!

Many commentators have said that the Bank is trying to influence areas over which it should have no control & namely soaring house prices and massive private sector debt.

Surely this is a no win situation.

A quarter point increase in base rates would appear to be doing absolutely nothing to cool the housing market.

But every time the Bank puts rates up it makes a huge difference to the UK economy.

Whichever sector of business you look at these days, there is scant evidence of a growing economy. One good measure of how well business is doing is to look at the amount of inward investment that is taking place. If a company is not prepared to invest in itself, it is a clear sign that it does not foresee a rosy economic future ahead. In the UK, it is clear that companies are not investing in either plant or workers.

Whilst many people point to high levels of employment as proof of a strong economy, the truth remains that right now it is the only government that is employing more people, not the service or manufacturing industries.

Meanwhile last Sunday’s Telegraph reported that the Council of Mortgage Lenders thinks that the Bank would have to double interest rates if it wants to significantly affect the housing market.

I’m sure this had most Telegraph readers choking on their cornflakes.

What the CML is up to, I really don’t know. Surely this is a mistake.

Monday saw the Daily Mail and at least one other tabloid newspaper plastering the same story on their front pages. The CML have subsequently gone into denial but that hasn’t stopped the British media putting out the usual garbage. Interest rates set to double? What complete rubbish!

House prices meanwhile paid absolutely no attention to all of this nonsense and continued their upward march.

All of the pundits who claimed that prices would fall this year, (oh yes and last year as well and the year before that) have been out in force again predicting that house prices will yes, you guessed it, fall this year.

When will these people be treated with the contempt they deserve for being wrong so many times? What will it take before they shut up? My local estate agent says they are bound to be right this time because they’ve been wrong every year up to now. What kind of logic is that?

Oh well, I suppose the vast fees that property pundits charge for their ineptitude at least pay their mortgages. We wouldn’t want to see them have their homes repossessed would we?

Nationwide reports annual house price increases are averaging 19% at the moment enough said.
And there’s another interesting thing. All these doom merchants turn out to be homeowners themselves.

Not only do they talk a load of twaddle, but they don’t even have the conviction of their own arguments. Why haven’t they sold up and moved into rental accommodation like they keep telling us to do?

It wouldn’t have anything to do with their house prices continuing to rise would it?

And what else are you going to do with your money anyway. I note in the Sunday Times that anyone investing in the stock market has lost on average 25% of their money over the last 3 years and 33% of their money over the last 5 years.

Talking of listening to the experts, I notice that Tony Blair’s old house is back up for sale. The Blairs sold it for 615,000 back in 1997. Today it is back on the market at 1.69 million.

Nice one Tony you just lost out on a cool million pound profit.

In fact, the house made more each year than our erstwhile Prime Minister did.

Meanwhile, we live in hope that house price inflation will fall to about half of what it is now.

Never mind 19% per annum, we’ll settle for 10% per annum so that we can watch our property portfolio double in value every seven years.

Oh well, we’ll just have to settle for even faster growth until things calm down.

This entry was posted on Wednesday, February 6th, 2008 at 4:49 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.