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Interest Rates to Reach 8%
By The Anglo American | August 23, 2010
Inflation in Britain is expected to reach 10% and to stop further rises will require interest rates of at least 8%.
But there is no relief for savers. As interest rates continue to drag against inflation, savings will contract in real terms.
And savers have every reason to feel angry. Most “Buy to Let” landlords should now be bankrupt had market forces prevailed. British people went crazy buying properties loaned against their home. Greed seduced amateur landlords to play dominos…….buying one property after the next, using no real co-lateral.
Is it any wonder that there has been a housing shortage in the UK and a property bubble to go with it?
Their failed business model presumed housing was not an asset class like every other asset - the value would always go up.
Now, they are “upside down” to use the American expression. The property loan is bigger than the value. And prices are going down again, according to the Nationwide Building Society Survey. Rental prices show no upward move either. The only reason that this is not one massive train wreck is that low interest-rates have kept property speculators from hitting the buffers.
In other words it is only British savers that are keeping this disintegrating train on the rails.
But all this is about to change.
Chief economist, Andrew Lilico, at the intelligence think-tank, Policy Exchange, says we face an interest environment similar to 1990’s of boom and bust. He believes the UK double dip recession will be brief. But, a boom will quickly follow. And this boom will run out of control. The Bank of England’s existing policy of “huge expansion in the money supply, will now lead to inflation”.
The reulting boom will be unsustainable - as always. But this will be of academic interest to Britain’s army of property speculators. Unable to pay the increased interest rates on loans, their property empires will be long gone before the inevitable bust.
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