[Finance] BoE Interest Rise

[Westdene Seagull]

Hopefully someone can explain to me how raising the interest rate helps.

> Mortgages up ( unless in a fixed deal. Rents up because Landlords mortgages have gone up
> Energy charges going through the roof
> Food prices up
> Petrol at stupid prices
> Council Tax up everywhere
> NI up
> Other bills such as internet etc up

Do the BoE not realise there is a cost of living crisis ?

 

[Hotchilidog]

Hopefully someone can explain to me how raising the interest rate helps.

> Mortgages up ( unless in a fixed deal. Rents up because Landlords mortgages have gone up
> Energy charges going through the roof
> Food prices up
> Petrol at stupid prices
> Council Tax up everywhere
> NI up
> Other bills such as internet etc up

Do the BoE not realise there is a cost of living crisis ?

Evidently not. Crazy decision

 

[nicko31]

Hopefully someone can explain to me how raising the interest rate helps.

> Mortgages up ( unless in a fixed deal. Rents up because Landlords mortgages have gone up
> Energy charges going through the roof
> Food prices up
> Petrol at stupid prices
> Council Tax up everywhere
> NI up
> Other bills such as internet etc up

Do the BoE not realise there is a cost of living crisis ?

Guess the argument is inflation is supply lead, not so much demand lead.

But inflation is out of control. We might need to have a contraction to deal with it

 

[southstandandy]

Economic theory would suggest sticking interest rates up, reduces demand thus (theoretically) eventually leading to an eventual reduction in prices and ultimately a reduction in inflation. That's what I can remember from my Economics days and that was a long time ago.

Is it going to work? Who knows, but since Covid, the war in Ukraine and shooting ourselves in the foot with the 'B' word, it's little surprise we are all now struggling.

Thank god we don't have a mortgage anymore. Small mercies.

 

[Dick Swiveller]

Standard economic reaction. Higher interest rate means less money to spend for those that can't afford it and people with more money likely to save than spend. But when the spends are essential then it makes no sense whatsoever. Sounds like they did as well at Economics A Level as I did.

 

[Pondicherry]

Higher interest rates encourage people to save which takes money out of the economy which means less spending on 'things' which means lower demand and less inflation.

However, I believe that because we (the central banks) printed so much money to pay for 'stuff' during COVID, interest rate rises may not be powerful enough to curtail inflation.

 

[Mellor 3 Ward 4]

Evidently not. Crazy decision

Just my opinion but personally don't think it's a crazy decision.

In fact I think they have left it rather late - should have happened a month ago - and should have probably been an additional 3/4%

Unless inflation is bought under control (and it's heading for 15% by next Spring) then the spiral of increased prices, increased wages will continue unabated.

 

[Gwylan]

From what I remember from my economics A level, interest rate rises also protects the cost of sterling. If the rate comes down, then sterling depreciates leading to ever higher inflation - which particularly affects petrol prices (as oil is priced in dollars)

But I did my A level getting on for 50 years ago, so what do I know?

 

[knocky1]

Time to pay for the 14 years of quantitative easing. A 15% devaluation of the pound against the dollar in a year hasn't helped with commodity imports priced in dollars. To protect the £ we need to follow the US rates. Left it late in my opinion.

Edit. I didn't copy the two posts above. Honest.

 

[Dick Swiveller]

Just my opinion but personally don't think it's a crazy decision.

In fact I think they have left it rather late - should have happened a month ago - and should have probably been an additional 3/4%

Unless inflation is bought under control (and it's heading for 15% by next Spring) then the spiral of increased prices, increased wages will continue unabated.

That is ice cold economic theory. But energy prices going up well over 100% and fuel prices going through the roof with the knock on increase in the costs of all other goods, is it really the time for compassionless theory? A lot of us can cope. But I have no idea how the others will.

 

[nicko31]

Just my opinion but personally don't think it's a crazy decision.

In fact I think they have left it rather late - should have happened a month ago - and should have probably been an additional 3/4%

Unless inflation is bought under control (and it's heading for 15% by next Spring) then the spiral of increased prices, increased wages will continue unabated.

Inclined to agree, if we don’t deal with it ASAP we’ll be deal with something a whole lot more ugly in a year or two.

I’m glad the BOE is independent of the government

 

[CHAPPERS]

I’m glad the BOE is independent of the government

But for how long?

 

[Gwylan]

That is ice cold economic theory. But energy prices going up well over 100% and fuel prices going through the roof with the knock on increase in the costs of all other goods, is it really the time for compassionless theory? A lot of us can cope. But I have no idea how the others will.

Well, the government could act to mitigate that. They could cut VAT on energy (this was actually something claimed would happen by the Brexit camp during the referendum). They could introduce a price cap of no more than a 5% increase in energy cost (as France and other countries have done). So, there could be interest rate rise to protect the pound while helping the public keep the bills low - but the government chooses not to do that

 

[Paulie Gualtieri]

Hopefully someone can explain to me how raising the interest rate helps.

> Mortgages up ( unless in a fixed deal. Rents up because Landlords mortgages have gone up
> Energy charges going through the roof
> Food prices up
> Petrol at stupid prices
> Council Tax up everywhere
> NI up
> Other bills such as internet etc up

Do the BoE not realise there is a cost of living crisis ?

Tied to demand and supply

It’s expected that a reduction in household finances stops people spending, reducing demand thus reducing prices


Sent from my iPhone using Tapatalk

 

[Weststander]

The BoE are obsessed with inflation.

But this is cost-push inflation, stemming from overseas events.

Madness. This will drive 1,000's with variable rate mortgages and other borrowings over the edge. 1991 to 1993, 100,000's folk lost their homes or handed in the keys.

Although these rates are tiny compared to Lamont's 12/15/15.75%, the sums borrowed now are vast by comparison. In 1987 the average cost of a UK house was £45,000, a 95% mortgage sum £42,750. The average mortgage for a first time buyer today £170,000.

The wider economy - swathes of businesses in eg hospitality are on the brink of closure, due to a lack of custom and rising costs. Taking disposable income away from households in increased borrowing costs will accelerate the process, deepen the recession.

 

[Nobby Cybergoat]

Standard economic reaction. Higher interest rate means less money to spend for those that can't afford it and people with more money likely to save than spend. But when the spends are essential then it makes no sense whatsoever. Sounds like they did as well at Economics A Level as I did.

This is the key point to me. If inflation is rising because people are buying swanky watches and sports cars, then yes, interest rate rises may help curtail it.

But increase in spending is overwhelmingly not discretionary purchases. It's very hard to buy less food or less fuel or heat your house less.

To me, this is just going to exacerbate the problem

 

[Dick Swiveller]

Well, the government could act to mitigate that. They could cut VAT on energy (this was actually something claimed would happen by the Brexit camp during the referendum). They could introduce a price cap of no more than a 5% increase in energy cost (as France and other countries have done). So, there could be interest rate rise to protect the pound while helping the public keep the bills low - but the government chooses not to do that

Well quite. But the guy married to a multi millionaire/billionaire and the woman married to a qualified account, so presumably not short of a few bob, tell us we all need to take the pain. My mortgage will go up £10 I expect. New buyers mortgaged to the hilt as it is the only way they can afford a house and get away from extortionate rental costs will not be as lucky.

 

[Weststander]

Tied to demand and supply

It’s expected that a reduction in household finances stops people spending, reducing demand thus reducing prices


Sent from my iPhone using Tapatalk

This is cost-push inflation, not linked to a consumer boom, there isn't one.

Prices cannot fall. Imports costs more, fuel costs more, distribution and shipping costs more, a shortage of staff is leading to wage inflation.

That "household finances stops people spending" in this case at this time, will cause businesses to fold eg retailers, cafes, pubs.

 

[beorhthelm]

two simple reasons. first BoE has remit to control inflation, as interest rates are about the only tool they have, they will use it. if they dont and inflation continues everyone will complain they didnt raise rates. second, if they dont keep in some step with US rates that will hurt £, which means imports cost more, inflation goes up.

then there's all the guff about demand, which we know in this situation is a minor consideration. there is another 4d reason, that interest rates are going up now so they can be cut later when things in the economy are really bad, thats more applicable to US Fed policy.

rates are still incredibly low and affordable by historic standards and we should have been raising incremently past decade.

 

[PILTDOWN MAN]

This is the key point to me. If inflation is rising because people are buying swanky watches and sports cars, then yes, interest rate rises may help curtail it.

But increase in spending is overwhelmingly not discretionary purchases. It's very hard to buy less food or less fuel or heat your house less.

To me, this is just going to exacerbate the problem

Totally agree and it will cause unrest before long. Those that make such decisions live in a bubble completely devoid of knowledge of normal people and their current issues.

Utter madness the inflation is being caused by things the government could do something about.