Could Interest Rates Return to ZERO? - Will Low Rates Return?

A look at likelihood interest rates could return to very low levels seen in the 2010s. Was the zero rates of 2009-22 an anomaly or will the economic forces which caused low rates come back.
Text version at
www.economicshelp.org/blog/21...
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► www.economicshelp.org was founded in 2006 by Tejvan Pettinger, who studied PPE at Oxford University and teaches economics. He has published several economics books, including:
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[@economicshelp1]

Specific forecasts for UK economy in 2024 can be found here. kzbin.info/www/bejne/bZCthn2oaLuLiqM

[@r_skyaz]

So, if your fixed interest rate is due to expire this year, do you remortgage for fixed or variable? ... And if fixed, for how long 2-3 years or 5+ years?

[@mrmeldrew693]

Timing and luck plays a massive role for the average person. Despite having decent pay rises each year, I would struggle to afford to buy my own house now due to price rises. I've paid off my old style student loans, where my slightly younger sisters got stuck with the much higher tuition fees. I'm remortgaging in April. Its all a coin toss.

[@NexusGamingRadical]

I love this channel for staying informed above the others.

[@aceofspades5786]

Balanced and informative. Nothing is off the table, rates could fall as quickly as they increased.

[@RabJ208]

Great video upload mate!

[@adeyiwunmi]

happy new year ! been waiting for a video from you

[@economicshelp1]

Thanks

[@drscopeify]

Really good video! Amazing work.

[@ecnalms851]

Why don't they just make a policy of having the bank rate match with the inflation rate? Surely this would be good for keeping inflation low and stable, reduce influence of politicians and committee members whose opinions could be wrong or political, good for savers, and also be good for confidence for borrowers as they know what will cause a rise in interest rates? Simple but an effective policy?

[@dimitristripakis7364]

This is what was happening back in 80s socialist Greece, when everything was booming. But I guess people will say that they do not want the socialist pestilence in the US.

[@roryoneill9444]

Good video and it explained the 0% interest rate issue in the last few years.

[@johnestok277]

Why are 0% interest rates not good for productive things like manufacturing but are good for housing? What interest rate is good for manufacturing?

[@Jon-da-bad]

you make no income on your savings. pull money out of banks and into stocks,efts, etc.

[@Jacky-Boy]

Why would the bank of England increase interest rates to solve inflation given that it was caused by structural inflation?

[@arghjayem]

Because they aren’t as smart as they claim to be! 😂

[@Alex-fm5ke]

They’re understanding of macroeconomics isn’t as good as it should be

[@fakename45]

The BoE only has the authority over monetary policy (I.e., interest rates & QE)... Given the government's fiscal policies are about as useful as chocolate teapots (Seemingly doing little to nothing to curb energy inflation for example), the BoE is doing the only thing it really can do: Making it harder for people to buy things in order to artificially lower demand.

[@mattmackenzie1111]

They are concerned that the Inflation will cause a wage sprial. Given that wages have jumped in last couple of years this is could of been very lightly.

[@carloandreaguilar5916]

Doesn’t matter what the cause of inflation is. Raising interest rates will always lower inflation.

[@andersolsen1478]

Yes, rates will go back to 0 because companies and states cannot afford the current level. So even if it makes no sense it will happen.

[@Only-one-life-68]

I’ve always stated that governments whether Uk 🇬🇧 USA 🇺🇸 Germany 🇩🇪 are into the banks/central banks that is more than the citizens of these countries

[@peterjamesluck]

What about the state deciding to print/create an extra 30-40% of all pounds in existence. That’s the main cause of inflation.

[@suds782]

U.K. growth has almost been halted . Most businesses are cutting costs and recording all time high profits . Salaries are not getting paid fairly . Government will have no option to reduce interest rates if they want any chance of growth

[@jakemorgan9275]

When measuring inflation, all the data essentially just looks at symptoms of inflation rather than the actual driver of inflation. Quantitative easing, from 2008 in particular, flooded the economy with money. Absolutely necessary at the time, for sure. However, for ease, if we assume the number of products relative the the number of people remain the same, all that extra money means that there is more money for the same number of goods. In reality it's much more complex than that and the number of people, goods and demand constantly shift. However, in a simple example... Imagine there is only enough beer left in a pub for 1 pint. 2 thirsty people want it but each person only has £5. Well then, the landlord could sell to one person for £5. Or they could sell them a half pint each for £2.50. Now though, if they have £8 each because of quantitative easing, and both want that last pint, the landlord could sell the pint to one person for £8 or a half pint each for £4. This is very, very, very basically how inflation works. Politicians and economist may tell you the beer price has gone up due to a short term bad harvest of hops (and that might also be true) but the price was going to go up anyway because quantitative easing devalued the pound. Thirsty work, this explaining malarkey. I fancy a pint! This problem is compounded by the way inflation is measured. For example, house price inflation isn't even included in inflation figures! If it were, the increase in house prices since 2000 would have given us radically different official inflation figures. However, extremely low interest rates compared with inflation numbers that are selectively low, means that the difference in real inflation compared to interest rates increased and compounded over time, causing less and less affordability. Einstein described compounding as "The Eighth Wonder Of The World" for good reason. Does this all sound familiar? It certainly should. Not only are house prices unaffordable to most people unlucky enough to be born after about 1990, but there also isn't enough money to pay for vital services, such as schools, councils, the NHS, defence, faming subsidies, transport etc. etc. etc. And yes, even the cost of a pint of beer has gone up massively since 2008 - and not just since the interest rates went up! Hmmm... I'm still thirsty so I'll wrap this rant up. It is the very economic system itself that is the cause of inflation. War in Ukraine or the Middle East, Covid, oil prices and the impacts of Brexit certainly don't help, but even without these issues, we'd be pretty much in the situation we are now, just maybe a year or two later. Thanks to these meddling kids... er... politicians.

[@Mohammed-ej5ix]

Inflation was caused by government spending during covid such as PPE, furlough scheme and business loans. Gov printed more money to accommodate for this which led to inflation.

[@gunnarthegumbootguy7909]

So then does this mean for a private person that is this a good time to set up a long term like 2 or 3 year locked rate savings account before the rates drop?

[@InnuendoXP]

If only we had a world where we could have near-0% interest rates for permanent resident owner-occupant buyers only, especially first-time buyers. Impossible for many ordinary people to own something where they've nonetheless been more than covering the mortgage costs in rent for a decade.

[@acommenter]

Leverage is the problem, not the solution.

[@dimitristripakis7364]

You are right. My explanation is that politicians work for the bosses, not for the people. And if everyone has a home and a good salary, why would they break their back for the bosses ?

[@angusmacmillan5365]

As will be very obvious I don't know much about economics but why should governments or central banks set interest rates? Why should a lender and borrower not be free to contract at whatever interest rate they agree?

[@micmac8978]

Its time to follow the german model when looking at taxing businesses. Its the only way we will stimulate the UK's economy.

[@barmy_irooni]

Can you explain or put a link to how that is done in Germany?

[@glennnielsen8054]

Could it be imagined that the authorities change the definition and thus the calculation of inflation, so that it shows a lower inflation and they can keep the interest rate relatively lower to help the Ministry of Finance? Calculation of inflation is elastic in metric measures and the definition is not consistent between countries.

[@barry9741]

Interest rates at close to zero would have been nice if buy to let had been banned.

[@buy.to.let.britain]

why not make rates 0.8% to increase growth or even as high as 1.1% to increase growth ?

[@chrishart8548]

Low taxes increase growth

[@pritapp788]

Japan has had very low or negative interest rates for a long while, it brought no major boost to its economy. Doesn't work when all other levers of economic activity are being used poorly, on the other hand it's great for fuelling another housing or asset bubble which will ultimately benefit... people having enough funds ready to benefit from low interest rates. That is, those who least need any form of stimulus. However I can totally imagine dumb politicians and central bankers getting on board this idea because: -they want people to consume more, and low interest rates encourage consumption/credit over savings -they don't want/find it too hard to work on stuff that would boost economies on a long term basis (improving wages and housing affordability, investing in infrastructure and transportation, for example) Low interest rates is the path of least resistance and most politically expedient choice, with dire consequences.

[@BiggusDiggusable]

European low birthrates are mitigated by high immigration which Japan has not allowed. Quite different situations

[@user-ho1ln5ny1r]

Inflation rates?

[@rehurekj]

only thing i learned from not just this vid but all the crisis and recessions in past 30+ yrs is tha economy is just as scientific discipline and just as fact based as theology or philosophy and economists are more into modelling various economic theories based on their preferred ideological school rather than into actual economic stats, facts and into ppl and their lives theyre destroying in the process.

[@pritapp788]

What?? It's the total opposite of that, economics is not a science. It's a clumsy and irrational attempt to apply natural science theories to a field that is actually studying psychology and human behaviour. Human behaviour cannot be predicted with the application of hard science principles.

[@EuropeanQoheleth]

sigh There always has to be some materialist around briging up philosophy and theology to bash them without explaining why it is they supposedly lack facts. The irony is materialism can't prove itself; there's no material evidence that materialism is true, the verification principle can't be verified and there's no scientific evidence that scientism is true. sigh Internet atheists; you don't have to ask if somebody is one, they'll tell you.

[@MinkieWinkle]

I hope not, I hope the rates keep rising. We need markets to normalise. We need to move away from over a decade of artificially low rates.

[@aceofspades5786]

'low', may be the new normal

[@benjaques3040]

You think govements can afford 5% interest rates long term, forget it. They need to refinance a huge percentage of national debt in the next two years. We are a debt based economy after QE, we will return to pre covid interest rates, don't beleive the higher for longer rhetoric, with central bankers the opposite of their narrative will materialise.

[@Nousmourronsseuls]

Let’s hope not. Maybe a further increase? My savings are earning something decent after 10 years.

[@tomd5678]

Interest rates are closely tied to the bank base rate. The bank of England base rate is tied to the coupon on UK treasury bonds. The value of sterling is tied to that. Yes you can have zero interest rates... but it will have a significant effect in the value of the pound

[@klawlor3659]

Yayyyyy lets get those interest rates down and encourage the stupid/desperate/gullible folks to splurge on overpriced shitbox houses! Or get them splurging on that new shitbox Audi/beemer/Land Rover so you can prove that you're *really* successful 😅😅

[@barmy_irooni]

Oh la la what a cute numpty you are!!! Lol

[@steveparker9546]

Hyperinflation here we go

[@Cofarl]

It's a scam.

[@connormcleod9595]

The guys a comedian😂

[@andrewmacgregor8717]

PS, what type of wax are you using to polish that head of yours? Bees wax or Carnauba?I can't be bothered to listen to this, but why would interest rates go to zero. That doesn't make any sense, even for Britain. If you have money to lend, then you'd expect a return to lend it. And the rate of return would be related to the risk. So, I would never expect a 0% interest rate. EVER!

[@ep1929]

"I can't be bothered to listen to this" - then why don't you click on a different video?