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Warning Shot Across the Bows

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Warning Shot Across the Bows

The first rise in Base Rates since 10th February 2000 is no more than a warning shot across the bows of the British consumer. Increasing the base rate from 3.50% to 3.75% is a signal that rates can rise and will rise if need be.

Whilst there may be talk of growth and gradually increasing inflationary pressures, the reality is that house prices and consumer spending have continued to grow at levels which the country cannot sustain and which the Bank of England is not happy with.

Inflation may be the Bank of England’s mandate, but it appears as more of an excuse than a reason. With the impending introduction of the Harmonised Index of Consumer Prices, HICP (pronounced hiccup), the new inflation benchmark will be immediately lower and will no longer include house prices or Council Tax. Which may be great for massaging the inflation figures, but doesn’t reflect the reality for anyone who is a homeowner or has to pay the ever-obscene Council tax bill.

Prior to today’s rate announcement there had been some talk of a possible half point increase, with the Forex markets reflecting this, but most commentators were betting on the quarter point rise.

Now the chatter is already focusing on the next increase, as the money markets continue to price in an upward trend in rates. January is being seen as favourite for another 25 basis point rise, which would take the base rate to 4.00% and return it to a level last seen in February 2003.

For the housing market and consumers the message is clear &ldots; show restraint. That is not to say they want you to stop borrowing and start repaying your debts, that would be disastrous for the British economy and lead to a property crash. But the British consumer must curtail their credit mania.

 

 

 

 

Published Thursday November 6th 2003
 

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