Storm clouds gather over the pound as focus turns back to dire economy

[Scott]

 

LONDON, Nov 2 (Reuters) - The pound has just staged its biggest monthly rally in a year after shaking off weeks of British political turmoil, but this strength is likely only to be fleeting as investors return their focus to the stagnating economy and the Bank of England.

The pound crashed to a record low against the dollar of $1.0327 in late September after the government announced plans to slash taxes and ramp up borrowing.

Yet it had its best month since mid-2021 in October to trade around $1.15 after the BoE intervened to stem the market chaos, new finance minister Jeremy Hunt scrapped the budget plans, and Liz Truss resigned as prime minister.

https://www.reuters.com/world/uk/storm-clouds-gather-over-pound-focus-turns-back-dire-economy-2022-11-02/

[nigelforbes]

A major headwind for the Pound is the rate of strengthening of other currencies. The Baht just strengthened because the Thai current account went into surplus for the first time in a while, on the back of increased tourist arrivals. That increase came on the basis of 7 million tourists per year, the future is unlikely to see a lower number of arrivals. That means THB will almost certainly continue to strengthen against a USD that is already overly strong (111%).......think what will happen when USD does begin to weaken, especially if GBP does the same thing, as the article suggests, "this strength is likely only to be fleeting as investors return their focus to the stagnating economy and the Bank of England"! 

[Chomper Higgot]

The UK economy is heading into recession, is under high inflation and suffers anemic growth.

 

Sunak has cancelled most of Truss’ lunatic economic policies but there’s a £50Billion hole in public services.

 

Interest rates are set to rise again, which will drive many more home owners into the mass of people struggling to afford to pay bills, feed themselves and keep a roof over their head.

 

Sunak is openly discussing cuts to public spending (AKA Austerity 2) the brunt of which will be borne by those already struggling economic hardship.

 

Meanwhile the self harm of Brexit continues to damage the economy, constrain businesses and growth and ‘sunny uplands’ are out of sight and out of mind.

 

The US cavalry are not riding over the hill with a trade deal.
 

The UK needs to stop looking for the unicorn, there are no unicorns, it was always donkey wearing a dunce’s hat, deal with the elephant in the room.

 

On a positive note, at least the UK got it’s borders back.

 

 

 

Edited November 3, 2022 by Chomper Higgot

[BritManToo]

51 minutes ago, Chomper Higgot said:

Interest rates are set to rise again, which will drive many more home owners into the mass of people struggling to afford to pay bills, feed themselves and keep a roof over their head.

Higher interest rates are a good thing.

It discourages debt.

 

For the world to work properly interest rates need to be at 5-10%.

That makes savings/investments/pensions work.

Edited November 3, 2022 by BritManToo

[Chomper Higgot]

11 minutes ago, BritManToo said:

Higher interest rates are a good thing.

It discourages debt.

 

For the world to work properly interest rates need to be at 5-10%.

That makes savings/investments/pensions work.

I don’t disagree that interest rates have been too low for two long and that there are many benefits to ‘reasonable interest rates’.

 

But that’s cold comfort to those who now face massive increases to their mortgages and the many who will lose their homes.

[nigelforbes]

18 minutes ago, BritManToo said:

Higher interest rates are a good thing.

It discourages debt.

 

For the world to work properly interest rates need to be at 5-10%.

That makes savings/investments/pensions work.

Higher interest rates apply to government borrowings also, the higher the government debt repayments, the greater the tax burden will become at some point. The question for the man in the street is, where do you want your debt to come from!

 

Interest rates at 5-10%, really? That implies inflation that is way beyond the 2% target. Be careful what you wish for.

[BritManToo]

7 minutes ago, Chomper Higgot said:

But that’s cold comfort to those who now face massive increases to their mortgages and the many who will lose their homes.

It's really nobody's fault but their own.

With the current low interest rates there's no point in saving or investing.

The only people that win are those that borrow, and borrowing was always sold to me as a bad thing.

 

Did anyone really get a 1% mortgage thinking it would stay that way forever?

[BritManToo]

4 minutes ago, nigelforbes said:

Interest rates at 5-10%, really? That implies inflation that is way beyond the 2% target. Be careful what you wish for.

People expect to make a profit on their savings/investments.

Interest rates should ALWAYS be higher than inflation.

Currently in the UK inflation is 10.5%, so interest rates should be 12-15%.

[nigelforbes]

3 minutes ago, BritManToo said:

People expect to make a profit on their savings/investments.

Interest rates should ALWAYS be higher than inflation.

Currently in the UK inflation is 10.5%, so interest rates should be 12-15%.

It's a zero sum game, interest earned, taxed and the value eroded to inflation.

[Chomper Higgot]

19 minutes ago, BritManToo said:

It's really nobody's fault but their own.

With the current low interest rates there's no point in saving or investing.

The only people that win are those that borrow, and borrowing was always sold to me as a bad thing.

 

Did anyone really get a 1% mortgage thinking it would stay that way forever?

Clearly  you are not one of the millions of people who’s lives are being increasingly impacted by the UK’s economic problems.

 

 

Edited November 3, 2022 by Chomper Higgot

[Chomper Higgot]

20 minutes ago, BritManToo said:

People expect to make a profit on their savings/investments.

Interest rates should ALWAYS be higher than inflation.

Currently in the UK inflation is 10.5%, so interest rates should be 12-15%.

The economic factors that are missing and are at the heart of the UK’s economic woes are Productivity and Growth.

 

 

Edited November 3, 2022 by Chomper Higgot

[BritManToo]

4 minutes ago, Chomper Higgot said:

Clearly  you are not one of the millions of people who’s lives are being increasingly impacted by the UK’s economic problems.

I paid 17% interest  on my mortgage in the late 1970s.

Low interest rates are the problem, not the solution.

Edited November 3, 2022 by BritManToo

[nigelforbes]

Just now, BritManToo said:

I paid 17% interest  on my mortgage in the late 1970s.

That's because interest rates and the rate of inflation was high, just as you advocated earlier. 

[Chomper Higgot]

Just now, BritManToo said:

I paid 17% interest  on my mortgage in the late 1970s.

Good for you.

 

Now do the math.

 

How much was the interest rate when you took out the mortgage, how much was the percentage increase in the mortgage repayments, how many times your income was the mortgage, how much did the value of your property increase during the time you owned it, how much did your income increase in the 70s?

 

 

[BritManToo]

3 minutes ago, Chomper Higgot said:

Good for you.

 

Now do the math.

 

How much was the interest rate when you took out the mortgage, how much was the percentage increase in the mortgage repayments, how many times your income was the mortgage, how much did the value of your property increase during the time you owned it, how much did your income increase in the 70s?

All irrelevant.

For a country to work people must be able to make money from their investments/savings.

Else you will end up in the current situation where everything is going broke.

A house is a place to live, not an investment.

 

My savings and pension are not a charity to provide for the government, illegal immigrants and the poor.

Edited November 3, 2022 by BritManToo

[Henryford]

55 minutes ago, BritManToo said:

Higher interest rates are a good thing.

It discourages debt.

 

For the world to work properly interest rates need to be at 5-10%.

That makes savings/investments/pensions work.

That's why the Pound is <deleted>. Buffoon Bailey 2.25%, the USA 4%.

[Chomper Higgot]

3 minutes ago, BritManToo said:

All irrelevant.

For a country to work people must be able to make money from their investments/savings.

Else you will end up in the current situation where everything is going broke.

A house is a place to live, not an investment.

 

My savings and pension are not a charity to provide for the government, illegal immigrants and the poor.

For an economy to work it needs productivity, growth and market access.

 

Interest is not creating wealth, it’s simply inflating the amount of money without adding value to the economy.

 

It also slows investment, further reducing productivity and growth. 

[nigelforbes]

7 minutes ago, BritManToo said:

All irrelevant.

For a country to work people must be able to make money from their investments/savings.

Else you will end up in the current situation where everything is going broke.

A house is a place to live, not an investment.

 

My savings and pension are not a charity to provide for the government, illegal immigrants and the poor.

If you want a low mortgage rate you must tolerate a low savings rate, there is no choice because they are both interest paid on money borrowed. If you want those things, you better hope for low inflation and not the 5-10% inflation you indirectly advocated earlier.

[Phoenix Rising]

So will the current PM send a re-entry application this year or next?

[JonnyF]

5 hours ago, Chomper Higgot said:

I don’t disagree that interest rates have been too low for two long and that there are many benefits to ‘reasonable interest rates’.

 

But that’s cold comfort to those who now face massive increases to their mortgages and the many who will lose their homes.

Great for savers though. If people took out huge mortgages based on historically low interest rates then they didn't plan things very well. Same as people who moved to Thailand and thought it would be 70 to the pound forever.

 

Similarly, a weak pound is great for exporters, tourists etc.

 

Record low unemployment in the UK now. Very easy to find work for those who aren't playing the benefits system.

 

Two sides to every coin.

[placeholder]

12 hours ago, BritManToo said:

Higher interest rates are a good thing.

It discourages debt.

 

For the world to work properly interest rates need to be at 5-10%.

That makes savings/investments/pensions work.

Interest rates available to the public are governed by the rates that government offer on their bonds. So, if a government can borrow at rates far below that 5-10 percent, it shouldn't in order to keep interest rates payments to its citizens high? And if such high interest rates are available to savers, what does that mean for people who want to borrow for a mortgage?

[nigelforbes]

12 minutes ago, placeholder said:

Interest rates available to the public are governed by the rates that government offer on their bonds. So, if a government can borrow at rates far below that 5-10 percent, it shouldn't in order to keep interest rates payments to its citizens high? And if such high interest rates are available to savers, what does that mean for people who want to borrow for a mortgage?

UK high street bank interest rates available to the public are not governed by Gilts rates, they are governed by the BOE rate at the time and duration.

 

UK government borrowing rates are determined by the country's credit rating and the gilts rate. Index linked gilts coupon rates are determined by the RPI.

 

Mortgage interest rate payments are determined by loan to value (LTV), duration and credit rating of the borrower. 

 

 

[Mac Mickmanus]

11 hours ago, nigelforbes said:

If you want a low mortgage rate you must tolerate a low savings rate, there is no choice because they are both interest paid on money borrowed. If you want those things, you better hope for low inflation and not the 5-10% inflation you indirectly advocated earlier.

Is it a simple case of banks pay interest to savers on money invested in their banks and loan that money at a higher interest rate to burrowers ?

[placeholder]

20 minutes ago, nigelforbes said:

UK high street bank interest rates available to the public are not governed by Gilts rates, they are governed by the BOE rate at the time and duration.

 

UK government borrowing rates are determined by the country's credit rating and the gilts rate. Index linked gilts coupon rates are determined by the RPI.

 

Mortgage interest rate payments are determined by loan to value (LTV), duration and credit rating of the borrower. 

 

 

Has there ever been a time when bank rates are lower than gilt rates? What do you think would happen if loan rates were lower than gilt rates? You could borrow from the bank or mortage lender and buy gilts. Guaranteed profit, no? You don't think that the authorities are careful that doesn't come to pass? Am I missing something?

And aren't mortgage interest rates also determined by the rates at which the lender pays on the borrowed money? Are you claiming that the cost of money to the lender is immaterial in deciding what the loan rates should be?

[nigelforbes]

3 hours ago, placeholder said:

Has there ever been a time when bank rates are lower than gilt rates? What do you think would happen if loan rates were lower than gilt rates? You could borrow from the bank or mortage lender and buy gilts. Guaranteed profit, no? You don't think that the authorities are careful that doesn't come to pass? Am I missing something?

And aren't mortgage interest rates also determined by the rates at which the lender pays on the borrowed money? Are you claiming that the cost of money to the lender is immaterial in deciding what the loan rates should be?

The Bank (lending) rate has frequently been lower than the Gilts coupon rates, it seems you don't understand how these two things work! I have enclosed a link below for you to study.

 

https://www.investopedia.com/terms/g/gilts.asp#:~:text=Conventional gilts have prescribed maturities,maturity and repaying the principal.

 

In summary and in part: Gilts are sold at face value ,along with an accompanying redemption date and a coupon (or interest rate) - the coupon rate can be fixed or index linked (variable). Gilts are issued with variable maturity dates, they can be for a few years, 30 years or undated (which means there is no fixed maturity date). Interest on Gilts (the coupon rate) is paid twice per year, the interest rate on indexed linked gilts is adjusted according to the RPI. 

 

During the past 10 years, with the exception of 2022, the Bank Rate has remained under 0.75%, it appears to have averaged around 0.50%. Between 2014 and mid 2019, the coupon rate on the 10 year Gilt was always greater, between 1% and 2.75%. Good luck trying to borrow unsecured money from UK banks at a rate lower than the 10 year Gilts coupon rate, the fact remains however that the Gilts coupon rate is frequently lower but it cannot be usefully leveraged using borrowings.  

 

https://www.marketwatch.com/investing/bond/tmbmkgb-10y?countrycode=bx

 

https://tradingeconomics.com/united-kingdom/interest-rate

 

Regarding mortgage rates: MINIIMUM mortgage rates are determined by the BOE bank rate at the time the loan is written, the actual rate charged to the customer varies based on the things I described, which will nearly always be higher (some fixed rate products may occasionally be the exception).

 

[nigelforbes]

Gilts are a measure of inflation, they are priced, based on the rate of inflation. Changes to the BOE lending or base rate are the banks response to inflation, they are two separate systems.

 

On a related topic....I don't think Bailley likes the UK, its population or the Pound. Either that or he's in cahoots with Truss and Kwarteng. Dear god!

 

 

 

 

 

 

 

 

 

 

Edited November 3, 2022 by nigelforbes