Increasing the interest rate to 5%, is this really the fairest way to slow inflation?

Germanshepherdsmum

I agree Katie. There is much that could be cut back on, as you have already said. People have to choose between keeping a roof over their heads and having the latest phone, takeaways and ready meals. I’m sure we have all had to make choices to pay the bills.

So what happens to all the people who produce and sell the goods/services you deem non-essential?

I agree Katie. There is much that could be cut back on, as you have already said. People have to choose between keeping a roof over their heads and having the latest phone, takeaways and ready meals. I’m sure we have all had to make choices to pay the bills.

growstuff

M0nica

DaisyAnnReturns I am not offering solutions because I do not have any, nor am I endorsing the government's policy.

I just think that if people are going to be so critical of what has been proposed, then they should say what they think should be done in its place.

Raising interest rates isn't working - and it hasn't brought down inflation that much (unsurprisingly). In fact, it's contributing to inflation and is unsettling the markets.

Keeping interest rates the same - or even lowering them and taxing the groups who are spending the most - would give the markets some confidence and wouldn't contribute to the dire situation many people are finding themselves in. Banks benefit - as does a handful of private investors.

If the idea is to reduce borrowing, a downward trajectory of interest rates will have the effect of people delaying borrowing because they expect rates to come down.

Quite honestly, the UK is giving the impression to investors, including foreign ones, that it doesn't have a coherent financial policy.

Biden's path is an interesting one. Apparently, when they looked back, each of the last two times the Democrats had been in power they spent that time bringing the economy back to some normality. People then blamed them for their lower standard if living. The Republicans then came in and set about spending the money on their friends and destroying the economy once again.

Biden decided the money spending and the rationalization of the economy had to go hand in hand; his version of Roosevelt's New Deal. It seems it is working to some extent although a bit early to tell.

It wouldn't bother me much if take aways, coffee shops, ready meals, nail bars, beauty salons, gift shops, etc all disappeared overnight, but that's how people spend money beyond the essentials. I look around my own town, which is relatively wealthy, and "non-essential" services must employ hundreds of people. Our economy depends on people having money enough to afford more than subsistence.

It matters to the buyer of those services, personally I don’t care if they don’t do take aways, the waste that goes past me on the checkout you would not believe.
For example bought sandwiches for a child’s lunch £3.50, 2 slices of bread some salad and mayo, barmy.

JaneJudge

ronib

Ww2 I thought we had outsourced manufacturing to China? Although productivity is more than manufacturing I guess?

I work for a manufacturing company, the stuff produced in China is quite frankly rubbish compared with what we are producing in the UK in our very small team. The difference is remarkable. I think it is a shame and short sighted to be honest. Yes it is cheap but it falls to pieces in a matter of moths in some cases

I also worked for a manufacturing company. They did not want to offshore. However, in the end it was the only thing they could do. Governments had set the parameters so that was almost impossible to do anything else.

By offshoring, that at least kept a large number of the local jobs that they provided. I rather think it broke the owner's heart to send the manufacturing to China and, of course, it was never the same standard.

However the government had set things up so that we were to become a nation of Service Industries. Manufacturing, they believed, could be done anywhere. They didn't want to dirty their hands with such things. It didn't matter how many jobs were lost, as long as they personally kept getting richer.

growstuff

Katie59

The non essential waste is massive, ready meals, take always, alcohol, cable TV, mobile contracts, broadband, new phones, the list goes on. I have the minimum phone and mobile contract, I pay the minimum, some pay £50 a month + just for phone.

But it's not non-essential, if it provides jobs.

And it will be a drop in the ocean for those faced with a £2900 (average) rise in their mortgage payments next year, particularly if they also already have other debt, which most do, and on top of the food, fuel and energy price rises.
If people cut out everything you mention, which is unrealistic, Katie59, millions still won’t be able to keep their homes, whether on a mortgage or rented.

Katie59

The non essential waste is massive, ready meals, take always, alcohol, cable TV, mobile contracts, broadband, new phones, the list goes on. I have the minimum phone and mobile contract, I pay the minimum, some pay £50 a month + just for phone.

But it's not non-essential, if it provides jobs.

M0nica

DaisyAnnReturns I am not offering solutions because I do not have any, nor am I endorsing the government's policy.

I just think that if people are going to be so critical of what has been proposed, then they should say what they think should be done in its place.

Raising interest rates isn't working - and it hasn't brought down inflation that much (unsurprisingly). In fact, it's contributing to inflation and is unsettling the markets.

Keeping interest rates the same - or even lowering them and taxing the groups who are spending the most - would give the markets some confidence and wouldn't contribute to the dire situation many people are finding themselves in. Banks benefit - as does a handful of private investors.

If the idea is to reduce borrowing, a downward trajectory of interest rates will have the effect of people delaying borrowing because they expect rates to come down.

Quite honestly, the UK is giving the impression to investors, including foreign ones, that it doesn't have a coherent financial policy.

The non essential waste is massive, ready meals, take always, alcohol, cable TV, mobile contracts, broadband, new phones, the list goes on. I have the minimum phone and mobile contract, I pay the minimum, some pay £50 a month + just for phone.

Monica cut corporation tax and go for growth?

M0nica

DaisyAnnReturns I am not offering solutions because I do not have any, nor am I endorsing the government's policy.

I just think that if people are going to be so critical of what has been proposed, then they should say what they think should be done in its place.

Okay. But if you read your last sentence, shouldn't that include you?

Allsorts

Maisie,
If you are interested in inflation please do a little research into the 1978/ 1979 Winter of Discontent under Labour, when the country really was broke, Thatcher got in because Labour gave up, that year interest rates soared to over 17% as Tories were left a sweet note in the treasury, from Labour, the kitties empty hold luck. You can't Norris and not take tge consequences, there isn't really a free lunch.
We have had a Pandemic, the world almost stood still, the boring and very expensive Brexit battle where instead of dealing with the economy we had to battle a load of bad losers worried mostly about their holiday homes. Now instead of getting on with things other little groups are not interest in getting things on track, just to get heard about some perceived slight.

So it's OK to treat a group of people, mainly in their late 20s and 30s, with mortgages and loans as collateral?

And don't tell me about the time interest rates were at 16%! The size of current loans means that the increase is a far higher percentage of people's incomes than it was then.

@ moths I meant months but maybe moths are at play too

Allsorts

Maisie,
If you are interested in inflation please do a little research into the 1978/ 1979 Winter of Discontent under Labour, when the country really was broke, Thatcher got in because Labour gave up, that year interest rates soared to over 17% as Tories were left a sweet note in the treasury, from Labour, the kitties empty hold luck. You can't Norris and not take tge consequences, there isn't really a free lunch.
We have had a Pandemic, the world almost stood still, the boring and very expensive Brexit battle where instead of dealing with the economy we had to battle a load of bad losers worried mostly about their holiday homes. Now instead of getting on with things other little groups are not interest in getting things on track, just to get heard about some perceived slight.

On the other hand Allsorts, Maisie could remember that when the Labour government came to power in the mid-1970s, it came into an energy supply crisis and high inflation rather as the next government will, I think.

With the help of the social contract and a loan from the IMF, they managed to reduce inflation from the over 20% they inherited, to around 8 to 10% by the time they left office.

The Tories always talk the talk but it ends up with Labour, in our two party system, having to walk the walk the right leave behind them. Yes the people in work got to the point where eventually had enough - wages in real terms had fallen by 13% between 1975 and 1980. This did, indeed, lead to the Winter of Discontent.

However, in the groundhog days of our party system, people believed that the Tories could get them out of the situation, even though they had got them into it. We see this happening time and time again. As I said, Conservatives talk the talk but they'd never, ever, walk the walk,

ronib

Ww2 I thought we had outsourced manufacturing to China? Although productivity is more than manufacturing I guess?

I work for a manufacturing company, the stuff produced in China is quite frankly rubbish compared with what we are producing in the UK in our very small team. The difference is remarkable. I think it is a shame and short sighted to be honest. Yes it is cheap but it falls to pieces in a matter of moths in some cases

DaisyAnnReturns I am not offering solutions because I do not have any, nor am I endorsing the government's policy.

I just think that if people are going to be so critical of what has been proposed, then they should say what they think should be done in its place.

Ww2 I thought we had outsourced manufacturing to China? Although productivity is more than manufacturing I guess?

One of the reasons our economy is so sluggish is because of lack of investment, in things like productivity.

How does making borrowing to invest much more expensive help?

Maisie,
If you are interested in inflation please do a little research into the 1978/ 1979 Winter of Discontent under Labour, when the country really was broke, Thatcher got in because Labour gave up, that year interest rates soared to over 17% as Tories were left a sweet note in the treasury, from Labour, the kitties empty hold luck. You can't Norris and not take tge consequences, there isn't really a free lunch.
We have had a Pandemic, the world almost stood still, the boring and very expensive Brexit battle where instead of dealing with the economy we had to battle a load of bad losers worried mostly about their holiday homes. Now instead of getting on with things other little groups are not interest in getting things on track, just to get heard about some perceived slight.

When people are already struggling to cope with rising prices everywhere, this is simply piling on more pressure than many will be able to cope with. I'm old enough to remember when interest rates peaked at 17% in the late 70's. We hadn't been house-owners for long, had a large mortgage by the standards of the day, and had 2 children under 5 to support. Frankly, I think we would have gone under if DH's lovely parents hadn't stepped in with regular financial support. History is now repeating itself, as we are the ones who are now having to help out our own adult children. What a mess our economy is in, and I can't see it getting much better any time soon.

Katie59

A BoE rate of 5% means variable mortgage rates of 7% maybe more, if that is unaffordable homeowners need to go onto interest only for a couple of years. It just extends the mortgage for that time, bank are happy to do that because the last thing they want is prices falling and negative equity.

In current circumstances raising rates is not going to cure inflation.

The average mortgage rate over time has been 7%.
Lenders rarely offer interest only mortgages to the private buyer except in certain circumstances.
Interest only is mainly used for buy to let landlords this market has now tanked due to the ratio of rental income against the cost of the loan.
Lenders may well offer longer repayment terms.
Many are still on fixed rates so the full impact will only be felt over time.

A BoE rate of 5% means variable mortgage rates of 7% maybe more, if that is unaffordable homeowners need to go onto interest only for a couple of years. It just extends the mortgage for that time, bank are happy to do that because the last thing they want is prices falling and negative equity.

In current circumstances raising rates is not going to cure inflation.

It was ever thus. Our generation were targeted by raising interest rates and now younger people are facing the same problem. It will not slow inflation because inflation isn’t being caused by spending. I’ve always thought it an unfair way to manage the economy, it was unfair on our generation and it’s unfair on this generation.

Germanshepherdsmum

How is that figure calculated Casdon? I suspect it includes student loans and credit card debts many of which such as mine are paid off in full each month. If so it’s very misleading.

In 2022 polling figures tell us that 35% said they paid their credit card off in full and 65% said they carried some, or all, forward.

I doubt it has improved since then.