Interest rates in post-truth Britain #finance
The latest buzz word to join those most-hated headline grabbing words that editors love is post-truth. We are now in an era of appeals to our emotions as the evidence is swept away by a tide of nationalism. We have had two world wars driven by nationalism. Do we really want another?
The truth is
The truth is, low-interest rates have inflated house prices and put even starter homes out of the reach of first-time buyers. This was recognised this week by a member of the monetary policy committee of the Bank of England in what will be seen by many as the first sign that interest rates are about to rise. Mortgages payments will gradually rise and normally will eventually resume. There is some talk of building new houses in modular form in factories, while that might be welcome, we have seen experiments in low-cost housing before, everything from prefab to high-rise. The evidence suggests that people want traditional housing. There are however some apartment blocks that are traditional and popular too.
Rising interest rates
It seems likely the base rate will rise again in the US this December and with the pound to the dollar at an all time low there will be pressure on the Bank of England to raise rates. Higher interest rates mean inflation as mortgage payments rise. In the long-term, housing costs will stabilise and so will the ever-increasing Housing Benefit bill. It isn’t just the government that is in debt, the public has record debt in the form of mortgages and credit card balances. The base rate can’t be raised too quickly. It is about time that the middle classes took some of the pain for economic mismanagement by the government so new policies are now needed. In post-truth Britain, new lies will be needed to sell the idea to them too.
The stock market
The stock market continues to be volatile, but what will the trend be when interest rates rise? It seems likely that rising interest rates and tighter monetary policies will provide a drag on the stock markets but some companies will benefit such as banks and other financials. Pension funds could also benefit which could benefit some companies with large pension fund deficits.
I’m monitoring key indicators such as the price of Brent oil, the exchange rate of the GBP to the USD and of course interest rates. Premier Oil has come to a tentative agreement with its debtors and should the oil price rise above $50 we should see a corresponding increase in Premier’s share price. Royal Dutch Shell share price seems to track the oil price too. A few shares could benefit from a so-called Santa rally. Premier Foods is making a bit of progress. Shares in the AA have made progress this week too, but a long way to go before investors will be impressed. They too are restructuring debt. We should bear in mind that rising interest rates could cause problems for companies with high debt levels and now is the time to restructure not later. The one thing we can be sure of is that the future is uncertain and the age of post-truth is upon us.