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Bill Mott makes interest rate rise call

PSigma income fund manager Bill Mott says the Bank of England should raise interest rates when inflation falls below 2 per cent.

Inflation has fallen rapidly from a peak of 5.2 per cent in September 2011 to 3.4 per cent in February. Last month, BoE chief economist Spencer Dale said he expects UK inflation to hit its 2 per cent target by the end of 2012.

It is widely predicted that the bank will not raise interest rates until 2014.

Mott says: “At some point you have to normalise interest rates. It is my contention that if inflation falls and the squeeze on real disposable income lessens, the BoE should normalise interest rates. If it does not and should global growth occur, oil, food and other commodities will act almost as a central bank by their own prices rising and squeezing real disposable income, pushing inflation up again. I do not think the bank will raise rates and that will be a policy error.”

Henderson chief economist Simon Ward says: “I do not think inflation will fall below 2 per cent, given current policy settings, and I strongly doubt the BoE would respond by hiking rates.”

For a full interview with Bill Mott see next week’s Money Marketing.

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. Bill, do you sit in front of clients and give advice?Do you know the impact of what you are saying? People are still being squeezed by inflation, not on luxuries but on necessities like fuel and food.

  2. So Bill, what would you say is a “normalised interest rate”?

    lenders are already charging significantly high margins over BoE base rate, would this not just let them charge even more ?

    Base rates at 0.5% are good for the economy, teach banks to behave and help hard pressed families to cope with the cost of living.

    Putting up interest rates when inflation falls, makes no sense!

  3. ANY rise in BofE base rates at this time would push many hard working families over the edge and there would be major defaults in mortgages. I deal with a predominantly “home service” type of client and there are no signs from them that they are doing any more than just keeping their head above water.. The norm is now 0.5%! They say savers would benefit froma rise in rates – well guess what NO THEY WON’T. If anyone has lots of cash in a bank – other than businesses – then they can move the money to investments and take a higher income there. There should be many more people with mortgages over £30,000 than people with cash over £30,000. If I am wrong then we need substantially better advice given to those depositors.

  4. Trust a man who gets a very good living to carp on about inflation when mr joe average is struggling to make ends meet and doesent give a damm about inflation only what he has in his pocket to pay his bills, lenders are in some cases charging over 4points over base because they are greedy, so Mr Mott you are entitled to your opinion, but i suggest you keep your mouth tightly shut.

  5. perhaps mr mott is grooming himself for a political career..as the politicians haven,t a clue what the state of the majoritys finances are in.As with all other comments i see people on a daily basis who are living on the edge of financial oblivion ! In the majority of cases it is not their own fault but loss of jobs,lack of overtime and especially rising costs.The cost of fuel is a national scandal but when you are being paid over 50p per mile it becomes irrelevant.If you haven,t got anything positive to say Mr Mott i suggest you keep a very low profile as the banks are still doing very well without your help.

  6. Believe it or not, he is sort of probably right but not now. I agree that it would be wrong to hike rates at the moment as to do so would cause repossession on a massive scale, but we do need rates to rise eventually to restore balance to the system and give ‘safe’ income to savers. We also need the banks to give reasonable returns to investors, especially when borrowers are still being charged substantial APRs for their loans but returns are being channelled to ‘profits’ rather than reasonable income for investors. If you remember when rates were ‘normal’, borrowers were charged around the BBR, clients received income just below (inflation was 2-3% so income was higher than inflation), pay rises were 3-4% + merit and basically everyone benefited. Then along came the FSA, took their eye off the banks, and allowed them to give themselves huge bonuses & salary awards based in ever increasing bad business practises. Fill in the blanks from here.

  7. It seems that the wealthy members of society are completely out of touch with the issues facing the vast majority of people in this country. The cost of fuel is a national disgrace as it affects people of limited means much more than the wealthy. Whatever happened to our progressive tax system?
    I’m not a socialist by any means, I voted Tory, but I am not impressed at all with the coalition’s handling of the economy to date. Mr Mott should try living on the sort of money that most people earn before spouting on about raising interest rates.

  8. Well said to all of the above!

  9. welcome to the new norm Bill, what planet do you live on planet plenty? well get back to earth, the real effect of the cuts and inflation will not be felt for another 12 mths or so, inflation is a distraction in your mind, pop down to a selection of supermarkets and do a quick survey on how people spend their money check out the empty shops in the high streets, the only reason its not worse is because of the low interest rates, the country has bailed out the banks and it will cost many billions of tax payers money to repair the damage , the money people are concerned that the low interest rate trend will hurt them so they seek to pass it onto the general public, if you want to do something constructive then start buying home made products and generate national wealth and jobs in the UK

  10. Well said Jwk. The banks should repay the bail out or make them bankrupt. That’s what they would do to us. The Govt should not re privatise the banks until they have done so and repaid all the loans back to us and indeed made up that which we have gone without.

  11. Mervyn King I believe now accepts that he maintained interest rates at too high a level for too long, on the ‘normal’ basis that he was fighting inflation. The point was missed that the UK could not affect the steep increase in fuel, food and other commodities prices on world markets which were the drivers of that inflation. Similarly if we were now to increase interest rates we would strangle any recovery at birth. Any increase in world commodity prices in the near future would then only make matters worse. The continuing increase in fuel prices in the UK is in any case acting as a break on our economy and we therefore do not require a damping down that is the ‘normal’ objective of interest rate increases. Don’t think Bill Mott has grasped that central banks ‘normal’ tools are not so effective as before and that the UK has no influence on the price of internationally traded commodities.

  12. Michael Hayward 5th April 2012 at 9:08 am

    When the economy is on the floor, private sector heavily indebted and economy being hit by the most savage austerity prog in history – it beggars belief to be talking about interest rate rises.

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