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

I can recall for a long time it being being usual to pay interest rates for mortgages of 5-6% (been on and off mortgages since the 1980's).

But it wasn't combined with rising prices for everything else.
Nor such acute housing shortages.

Currently negotiated a 2 year 4.5% deal last November but nearly paid off.

www.statista.com/topics/10449/personal-debt-in-the-uk/
Comprehensive summary of the debt burden.
It’s the personal loan payments and credit card debt specifically that will impact people, as these are often taken out to meet living expenses according to the reports.

www.money.co.uk/press/uk-personal-debt-rose-a-third-in-2022
This is where the figure came from Germanshepherdsmum.
It doesn’t mention student debt as a factor.

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.

I worry about the increased repayments for people who are already in debt. The average personal debt in 2022 was over £34,000 excluding mortgages. It’s scary.

M0nica

What is the alternative?

You sound like the government M0nica. They really don't seem to have anything to offer. Rachel Reeves doesn't give me much confidence either.

Apparently a senior advisor to the Treasury has said that the Bank of England must now drive Britain into recession. That they must create "the fragility and the uncertainty of a recession to stop firms putting up prices and to stop workers asking for more money " (Marr, New Statesman podcast)

Richard Murphy, whose opinions I usually find too extreme, made some good points on Politics Live today. He talked about the amount of pain today's rate rise would cause. He suggested it would be "massive". As well as the pain of increased mortgage interest we now have a rental market that relies so much on mortgages, as most landlords are now in the private sector as opposed to mainly council housing in earlier times.

He pointed out that the so-called "orthodoxy" of the methods being used was created in the 1970s. As well as rents having changed out of all recognition, the amount of money people borrowed on mortgages was much lower. In those days we didn't lease cars so our ownership of them wasn't attached to interest rates. He mentioned that a quarter of the costs we pay on water goes on interest. The increases for business will be passed straight on to us. He suggested those for water could go up probably threefold.

Both he and the Conservative on the panel agreed today's rise shouldn't have happened.

we have rented for a few years and we have recently bought but we bought on a fixed rate (quite high at the time) and we were used to paying 6% anyway. I know someone will be along to say I am a bit younger than some of you. But we have bought again on fixed, with a good deal because we just want to buy a house rather than paying someone else's mortgage and I hope people in other rented houses will be able to do the same. I know some people see housing as a financial transaction but for most people in rented and mortgaged housing, they se it as a HOME. Maybe this will reset the balance

MaizieD I am not arguing the case for this measure, just asking what we should do in its place?

Whitewavemark2

But it won’t work, there is no need to punish the ordinary person because demand is not the issue

The government “built in” a structural level of inflation over the past few years and this remains all the time it doesn’t tackle this issue.

But it will work to make those with savings and no borrowing richer.

But it won’t work, there is no need to punish the ordinary person because demand is not the issue

The government “built in” a structural level of inflation over the past few years and this remains all the time it doesn’t tackle this issue.

DiamondLily

From a personal point of view, I'm happy to finally get some sort of returns on savings and investments - they've been kept artificially low, to subsidise mortgages, for too long.

On the other hand, my family, who are younger, would like low interest rates.

But, we've been here before, in the 70's, 80's and 90's, and it's nothing new.

It'll pass.

Of course it'll pass, DL. Inflation always does. But it'll take longer to pass with the BoE deliberately stoking it...

M0nica

MaizieD what is the alternative to ^Increasing the interest rate to 5%,........ to slow inflation?^

How is that going to slow inflation, though, MOnica, when the inflation isn't being caused by excess demand (too much money in the economy)?

From a personal point of view, I'm happy to finally get some sort of returns on savings and investments - they've been kept artificially low, to subsidise mortgages, for too long.

On the other hand, my family, who are younger, would like low interest rates.

But, we've been here before, in the 70's, 80's and 90's, and it's nothing new.

It'll pass.

ronib

Growstuff but the policy is still not making any sense - there are more job vacancies than workers to fill them. So wages can still rise?

Ah! But if businesses fail, there will be lots of people unemployed, so plenty of people to fill those vacancies. It doesn't seem to matter that those people might live in the wrong part of the country and/or have a different skillset.

Growstuff but the policy is still not making any sense - there are more job vacancies than workers to fill them. So wages can still rise?

MaizieD what is the alternative to Increasing the interest rate to 5%,........ to slow inflation?

Ilovecheese

Very rich people are saying that we "need" a recession.

Then they can buy up all the property going cheap and rent it back to the people who used to own it!

Whitewavemark2

The government needs to address the supply crises and the answer is staring them in the face.

But that might involve pesky foreigners!

Whitewavemark2

Suppressing peoples spending ability will simply push the economy into a recession.

I think that could be the idea. Then people will be afraid of losing their jobs, so won't demand a pay rise or they will actually lose their jobs and end up taking any job going, whatever the pay.

ronib

Growstuff this is no way to govern.

I'm not claiming it is. IMO it's nuts.

The government needs to address the supply crises and the answer is staring them in the face.

Ilovecheese

Very rich people are saying that we "need" a recession.

We don’t and it won’t work. Remember Thatcher she forced the country into recession to “tackle” inflation - although the reasons for inflation were very different then- and as a result working people suffered badly, with 3million unemployed, thousands losing their homes etc

But it didn’t work.

The only thing that worked was the Big Bang in the city and growth.

It just struck me that RS is ex Goldman Sacks and I wonder if he’s trying to expand profits in the banking sector?

Very rich people are saying that we "need" a recession.

Suppressing peoples spending ability will simply push the economy into a recession.