GBP focused on Rate Hikes?

[Nowler]

Hi folks,

Why is it that the UK is leaning more towards rate hikes as opposed to cuts?
Am I missing something here?

We are due a period of contraction, and clearly there are blatant signs of global slowdown.
So why is the UK considering hikes before cuts?

Then you add the uncertainty of Brexit... where people are anxious as to what is going to happen.
This anxiety is more likely to lead to saving, as opposed to spending... which makes the consideration of hikes even more ludicrous.

I must be missing something here... I've got to be...

 

[Nowler]

Vindication!
Odds for a GBP rate cut jump today

 

[hatemypips]

Hi folks,

Why is it that the UK is leaning more towards rate hikes as opposed to cuts?
Am I missing something here?

We are due a period of contraction, and clearly there are blatant signs of global slowdown.
So why is the UK considering hikes before cuts?

Then you add the uncertainty of Brexit... where people are anxious as to what is going to happen.
This anxiety is more likely to lead to saving, as opposed to spending... which makes the consideration of hikes even more ludicrous.

I must be missing something here... I've got to be...

I guess its the risk of inflation overshooting in UK that prompts BoE to hike rates. Despite of its dormant nature this should be considered as bullish signal for Pound, ceteris paribus, especially after GBPUSD plunged hit two-year bottom at 1.25

 

[Nowler]

I guess its the risk of inflation overshooting in UK that prompts BoE to hike rates. Despite of its dormant nature this should be considered as bullish signal for Pound, ceteris paribus, especially after GBPUSD plunged hit two-year bottom at 1.25

Thanks for the input buddy.
Also, never heard the phrase "ceteris paribus" before, but I'm gonna start using it. Thanks!

I guess my understanding of inflation is grossly inadequate.
The way I frame it in my head is using the example of printing money or making money cheaper to attain (dropping the rates one has to pay to get a loan)... that is, too much money chasing too few goods drives the prices up due to more money being available, and thus people willing to pay higher prices.

I didn't really think of it in terms of - in the case of the GBP/USD - the devaluing of the currency makes importing more costly, and thus driving prices up for the consumer when businesses pass on those elevated costs. Ergo, higher inflation...

I largely rely on what I learned from that Ray Dalio youtube video "How the economy works" to understand QE and expansions/recessions.

 

[hatemypips]

Thanks for the input buddy.
Also, never heard the phrase "ceteris paribus" before, but I'm gonna start using it. Thanks!

I guess my understanding of inflation is grossly inadequate.
The way I frame it in my head is using the example of printing money or making money cheaper to attain (dropping the rates one has to pay to get a loan)... that is, too much money chasing too few goods drives the prices up due to more money being available, and thus people willing to pay higher prices.

I didn't really think of it in terms of - in the case of the GBP/USD - the devaluing of the currency makes importing more costly, and thus driving prices up for the consumer when businesses pass on those elevated costs. Ergo, higher inflation...

I largely rely on what I learned from that Ray Dalio youtube video "How the economy works" to understand QE and expansions/recessions.

"Cheap money leads to inflation" paradigm works when there is actual credit expansion and following consumption happens. What we had from QE so far is inflated asset prices, i.e. asset inflation. But well, in the long term, primary factor driving inflation is of course expansion of money supply. But the cycle where these fundamentals start to work becomes longer and longer. Definitely bigger than current duration of economic expansion.

 

[Nowler]

...But well, in the long term, primary factor driving inflation is of course expansion of money supply. But the cycle where these fundamentals start to work becomes longer and longer. Definitely bigger than current duration of economic expansion.

The debt cycle is the credit cycle, right?
Because creating credit is in fact increasing debt..

And the cycle you are referring to is the LONG-TERM debt/credit cycle... which roughly takes 50-75 years or so (Where as the economic cycle takes roughly 8-10 years)?