Interest Rates... and my Mortgage

ECB up 25 bps, BoE up by the same and more expected. I’m perplexed by all of this (and glad for my fixed rate mortgage) because I thought that:

• China was exporting deflation i.e. making our T shirts cheaper than ever before even if the big twat in Brussels tries to prevent us from buying their goods;
• Consumers where overextended on their credit lines both because of unsecured borrowing and exploding house prices;
• The Pound Sterling was overvalued vis-à-vis the currencies of its main trading partners;
• Inflationary pressures such as they are where mainly driven by energy prices which are not sensitive to steering rates;

So if we are experiencing inflation, mainly in asset prices and energy, driven by cheap money, and oil prices is it really all that sensible to be raising the base rate. I mean the only one of those that the central bankers can reasonably expect to influence is asset prices. They are hardly hoping to burst the property price bubble as that would be a cure much worse than the disease. Oil prices will not go down just because interest rates go up in Europe.

Whereas, certainly in the UK where floating rate loans are common, the impact on the consumer market will be immediate and quite possibly severe. All the central bankers can really expect is a good recession which I can not really believe is their intention. A good recession of course would lower Oil prices as demand would go down but talk about the cure being worse than the disease.

I know world economic growth has been quite rapid for the past four years or so and that this traditionally means inflation. But this spurt of growth has been driven by the BRICs and America. I’ve not noticed particularly high economic growth in Europe although asset prices have been under pressure... very confusing.