Will interest rates ever go up?

[David H]

I know the plan is to keep interest rates near zero ad infinitum, but what would the economic conditions to make it happen, and how likely is it to ever happen before I'm not here to enjoy them?

[twix123]

Interest rates will go up eventually, but if we knew the answer as to when we would make a fortune playing the market!

[gness]

Interest rates will go up the week I have spent all my savings. Sure as eggs are eggs.

[factor-fiction]

I heard some economists discussing on radio 4 that the current base rate was likely to stay in place now for at least another 12 months and one suggested the end of 2013. Nothing is certain in economics but there is no sign of any upward pressure on rates for at least the next 6 months and if the recession continues it could be quite a bit longer

[Psybbo]

gness, please let us know when you have spent your savings. x

[New Judge]

Unfortunately the only thing ultra low interest rates have done for the past four years is to erode the value of the savings accumulated by prudent people and to encourage further fecklessness by individuals, businesses and governments.

The problem in the UK is not the cost of borrowing. It is the availability of capital. All that low interest rates have done is to further stifle the flow of capital because lenders would rather hold on to their reserves than lend them at rates which are not commercially viable.

The cause of the global economic disaster was irresponsible lending to people and organisations who had little chance of making repayments regardless of the interest rate charged. Keeping interest rates low will do nothing to cure that problem.

[bednobs]

i disagree with your first sentence NJ. low interest rates have been great for me - i swapped to a tracker mortgage just before they went down

[David H]

I'm aware of the reasons for and consequences of low rates, pretty much what new judge said. They penalise workers and savers and reward borrowers. Bearing in mind 0.5% is not your interest rates for borrowing, but the bank's, you get a clue why they are so low. The government also enjoys the same privilege. Therefore they are looking after themselves and not us, as the lending rates to normal mortals are little different to before (as not tied to base rates) although mortgage repayments are lower. However all that does is keep prices up and stop first time buyers getting on the system.

But regardless of the self interested reasons for the low rates, there are clearly some economic drivers of higher rates, the major two being a wish to boost the value of the currency (no chance here as we don't sell anything) and to combat inflation, which is clearly no longer used as we've had that and they didn't react. Does this literally mean despite the market requiring around 5% (I've done my homework) there are literally no reasons at all to do so and we will repeat the criminal errors of Japan and have a decade or more of stagflation as they are only looking after the bankers and the defecit?

[gness]

Way I`m going Sibton.....July!

[Bigeye74]

post the question on the motley fool forum

[factor-fiction]

"...as they are only looking after the bankers"
I'm not sure what that means

[David H]

Oops, I must pay more attention to my replies:

"...as they are only looking after the bankers"
I'm not sure what that means

Interest rates are only binding on banks. 0.5% is what they pay each other. Therefore having massive loans and liabilities, after breaching the rule of 7 four times over in some cases (never lend more than 7 times your capital) and offering mortgages at 10 times income where 4 is the normal and reasonable maximum the banks owe a fortune. Therefore only the banks (including the government's money itself) are borrowing and paying back at this rate. The rates for customers hasn't gone down at all while the lending rate has always been a few percent above base and usually below inflation.

Therefore only the banks benefit, plus a few people with variable mortgages, but savers are many times more than borrowers so totally stuffed. They are now planning to drop them further, and if that isn't enough can then go negative by taking a percentage from everyone's savings. And guess what, it's not just legal but legally binding if decided on. Therefore the low interest rates are for the business at the people's loss and expense. Commercially they ought to be around 6% currently using the usual economic conditions used since they began.