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

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,

@ 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.

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.

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?

Monica cut corporation tax and go for growth?

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.

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.

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.

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.

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.

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.

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.

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.

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.

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?

And coffees and getting the nails done and the beauty treatments as growstuff mentions. I have no sympathy for those who bleat about their increased outgoings but still expect to have all these things.

The same as happens all the time when people are made redundant growstuff - there are plenty of vacancies we are told. I refuse to argue in favour of people who expect help with their mortgage payments whilst spending on these non-essential things.

You really have no idea, do you GSM. If you once did, as you like to boast, you have forgotten all you ever knew of being in position where the decisions were simply not yours to make.

People being callous about the least weĺl off is not going to improve society or the economy.

Please remember that the people that are providing what have been called non essential services have either mortgages or rent to pay.

Cannot believe that anyone would be advocating for people to lose their employment.

Germanshepherdsmum

The same as happens all the time when people are made redundant growstuff - there are plenty of vacancies we are told. I refuse to argue in favour of people who expect help with their mortgage payments whilst spending on these non-essential things.

I expect people will cut back on non-essential things and when millions of people do that, the economy will go into recession. That's how it works.

GrannyGravy13

Please remember that the people that are providing what have been called non essential services have either mortgages or rent to pay.

Cannot believe that anyone would be advocating for people to lose their employment.

I find it quite mind-boggling too.

M0nica

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

I suggested one solution in my first response to you, MOnica, and others have said the same. Instead of raising interest rates the BoE should be cutting them. It is completely illogical to use a measure supposedly to cut inflation which is actually contributing to it.

In addition I think that the goverment should stop claiming there's no money and telling lies about public sector wage increases being inflationary by causing a wage/price spiral, neither is true. Pay the public sector workers,, invest the needed funds in the NHS, Education and the Criminal Justice system and the invested money will circulate in the domestic economy, starting to revive it.

Once businesses can see that there is money in the domestic economy they might judge that it's worth investing in themselves.. Might even attract some foreign investment.

What is that old saying? "You have to speculate to accumulate"? Perhaps, as the supposed 'party of business (and, ironically, supported by people who've done just that) the tories should have thought along those lines...

Anyway, MOnica, as I noted earlier, you're an economist, aren't you? I'm really surprised that you have no ideas to offer us (and I mean that genuinely, mot having a pop at you)

Germanshepherdsmum

And coffees and getting the nails done and the beauty treatments as growstuff mentions. I have no sympathy for those who bleat about their increased outgoings but still expect to have all these things.

I have never been able to afford coffees and nail bars. In fact, I probably don't contribute much to the economy at all because I have very little left after I've paid my rent and bills. However, if everybody were like me, nobody could afford holidays, house improvements, cinema/theatre visits, restaurants, new cars, pets, etc etc. Millions of people are employed in providing those kind of services. There really aren't enough jobs for them. Not only that, but the problem the UK has is that there's a mismatch between the skills needed and those that people have.

Just remembering, when it was not at all uncommon for people to have a lodger or for someone to have a room in a house. I remember the time when mil mentioned the lodger, I thought nothing of it.

It has been difficult, many times in past years, for people to make ends meet. People did used to make do. Nowadays it does seem like instant gratification is the norm, hence money disappearing. Having cash in various envelopes got me through some very tough times. Having an app would not have the same mental spending restriction

Daisy. Decisions as to whether to buy non-essential items are easy to make if one realises that they are non-essential. People who have mortgages are hardly ‘the least well off’.

Btw I have never boasted about the very difficult time I went through as a single mother. It’s something I will never forget. Non-essential items certainly didn’t feature in my expenditure. To this day I don’t buy ready meals, a takeaway features perhaps two or three times a year, my phone is second hand, I buy probably two items of clothing a year, and I have never had my nails done - and unlike those complaining about their mortgages, I can very easily afford all these things. I’m just waiting to see someone moaning about their mortgage whilst sporting fake nails, lashes, lip filler and hair extensions - coming to your screen any day now.