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

The Government can overrule the Bank at any time and the Bank has very few tools it can use.

The government, or rather, Parliament, 'could' over ride the BoE if it had a mind to. The legal mechanism exists in Section 19 of the 1998 Bank of England Act.

That being so we have to ask why the government is carrying on as it is.

Various answers will be available, according to one's political stance, economic knowledge and ability to make reasoned judgements...

I think they're trying to cow the working population into accepting minimal pay increases and perpetual financial struggle as their lot in life. Creating a vast pool of low cost labour to boost company profits, executive pay and dividends to shareholders.

Other might disagree with me ..

The Bank of England control interest rates, not the government. Why they think raising interest rates will slow inflation baffles me because inflation isn’t being caused by people having too much money. Although I saw a wage rise of over 15% had been agreed to by somebody yesterday but I can’t remember who it was. The public sector are being squeezed dry so are certainly not contributing towards inflation.

Batworthy

Increasing interest rates has never slowed inflation when implemented on 13 previous occasions, so I'm baffled as to why our nutty government thinks it will work this time.

The government do not control interest rates

Increasing interest rates has never slowed inflation when implemented on 13 previous occasions, so I'm baffled as to why our nutty government thinks it will work this time.

Germanshepherdsmum

My first house, a real doer-upper, cost £1750 in 1970.

Ours, which was similar to yours by the sound of it GSM, cost a little over £3000 in 1974. We had to get a mortgage from the Local Authority as no Building Society would look at us as we had no deposit as I had just finished higher education and my husband was still a post grad student. It was a two up, two down terraced house. When we sold it two years later we made no profit on it. We had to sell because we were relocating to the south. Although we were both working by then, we had enormous trouble getting a mortgage for our next house as the Labour government had brought in conditions for getting a mortgage and Building Societies were not allowed to give mortgages to second time buyers. We managed to get the mortgage from a French bank eventually, otherwise I don’t know how we would have managed. The Labour government at that time certainly did nothing for us in 1976.

Germanshepherdsmum

My first house, a real doer-upper, cost £1750 in 1970.

I think that demonstrates what I'm saying, if you had stayed in that house until now it would have increased in value by £112K but OH's house bought later for more money at a time when prices had dropped following a steep rise, would have made more than £550K.c Of course most of us didn't stay in the same house, OH moved 3x before I met him in the mid 80's, I had bought my own modest house following a divorce and we've moved twice since then, buying and selling a holiday home in the 90's. There's a lot of luck involved as we've had some interest hikes and some serious deflation of prices over the years and fortunately we've always been able to ride out the difficult years. I still think the current situation is the most difficult time to get on the housing ladder and renting is very expensive.

Mirror Mail

two to

The Government are doing the only the only thing they know how to do. Sadly they really aren't very knowledgeable. Idiots is probably pushing it, but sometimes I wonder what we level of intelligence we have got in the government.

They're trying to reduce inflation by raising interest rates.

I don't know how often you can say this without people realizing people realizing that the government is going about it the wrong way.

We do not have excessive demand. We have two little supply.

We have a supply side inflation problem. To deal with that the government should be boosting production. We all realise we have bottle necks in this respect. Too few workers for instance. Sadly it seems the government feels unable to do what is right for the country in this instance. They, and those whose thinking does not get past Daily Mirror level, just go all out on "othering". A common Tory/superiority-complex sport.

They need to listen to the employers and what their needs are not just act as the strangled-brained idiots they are.

Currently they are strangling GDP. They are doing this for purely political reasons. They are either not prepared to think about the country or their minds are not capable of getting out of their self-inflicted rut.

They have the tools that for political reasons they are refusing to use. In the process they will tear apart the lives of many people.

How can any of you "I'm alright Jacks" continue to support this party?

My first house, a real doer-upper, cost £1750 in 1970.

I do wonder if people really understand the difference between buying a house in the 70's and buying now. OH bought his first house in 1976 for £10K, did it up a bit and sold it 18months later as he moved jobs. He had a mortgage of 2.5X his salary and he had a deposit of £1K. That house is now worth well over £700K. To do what he did in 1976, he would need a deposit of at least £60K and a mortgage for £660,000. He reckons that his salary would be £30K if he was in the job he was in in 1976. so the mortgage would represent more than 20x his salary. Clearly he wouldn't be able to buy the house he bought in 1976! Our homes have consistently earned more money than we have and rents have consistently increased to keep pace with rising house prices, so it has become increasingly difficult to save for a decent deposit. Those of us who were able to buy our homes have been extremely fortunate, if we live in areas where there are an acute shortage of housing, once into that market we have been doubly lucky. I've not been a clever speculator, been extremely prudent with my money or even earned huge salaries. I have just been very lucky and I feel huge gratitude for my good fortune which I am able to share with my children, so they are now also very lucky. So the rich get richer and the poor get poorer!

Purely an anecdote about how quickly house prices rose in the 70s Daisy. What’s your problem? Do you know how you come across?

We started married life in a two up two down as well. We only lived in it for two years and when we sold it we didn’t make a profit. We had to sell because we were relocating.

Germanshepherdsmum

Does nobody remember rising house prices in the 70s? I had a very modest two up two down. I worked with a girl of similar age - she and her husband were renting but looking to buy. Nothing was good enough for them. Prices began to rocket and they ended up with something worse than they originally turned their noses up at. Meanwhile we made a profit and moved upwards.

I really do wonder if you know how you come across in print.

4allweknow

There were no cries for help in 1992 when rates reached 15%. Before the buts, yes prices were lower but so were wages.

It's the percentage of cost to income that is higher that makes the difference.

I agree with you totally,Germanshepherdsmum.

This is about the US, which is facing the same inflationary pressures as the UK

www.theguardian.com/commentisfree/2022/aug/17/inflation-is-causing-real-pain-but-raising-interest-rates-will-make-it-worse

www.smh.com.au/money/banking/supply-side-inflation-nemesis-of-central-banks-20211025-p592y2.html

MaizieD

GrannyGravy13

Excuse my musings if the banks put up interest rates on savings accounts and ISA’s more people would lock their money away for a 1/2/3 or even a 5 year period which would take money out of circulation which under normal circumstances would help bring down inflation.

Unfortunately inflation is being driven by more external factors than supply and demand, but every action would help.

Inflation is being driven by external supply shocks, and now, the BoE raising interest rates.

People saving their money instead of spending, it seems to me, will just result in putting companies out of business, though I have seen it argued that they might reduce prices in order to get people buying.

Saving instead of spending doesn't appear to me be helpful at all.

But, how long could they sustain that for? Particularly if they are having to pay increased charges on loans and rentals.

And it will do nothing for inflation, because our current inflation is not being caused by too much money swilling around in the economy. I don't understand how people don't understand this.

I agree with you regarding the current situation, which is what I said in my last paragraph.

Locking any available funds away at the highest interest rate possible is still attractive though.

ronib

Gordon Brown put a stop to Nora’s arguing it was only benefitting middle class couples. Typical!

This made me smile. I was wondering who Nora was. Till you explained.

Germanshepherdsmum

Does nobody remember rising house prices in the 70s? I had a very modest two up two down. I worked with a girl of similar age - she and her husband were renting but looking to buy. Nothing was good enough for them. Prices began to rocket and they ended up with something worse than they originally turned their noses up at. Meanwhile we made a profit and moved upwards.

We were gazumped when trying to buy a cottage in the mid 70s. We had an offer accepted and then the estate agents told us that a cash buyer had come along and offered the same price. Would we offer more? We said yes but the same thing happened at which point we said "Up Yours"

growstuff

Dinahmo

growstuff

GrannyGravy13

growstuff one of the reasons we delayed getting married was whilst we were single despite living together and a joint mortgage we both were able to claim miras

I didn't realise that. Maybe if I had, we would have delayed getting married.

I can remember advising clients not to get married for that very reason.

We didn't have a joint mortgage until we got married in 1986, so I guess we didn't miss much, but I'm pretty sure we weren't told. Before then, the mortgage was in my name alone.

Successive governments have encouraged people to buy and been a catalyst for the current high prices.

You probably didn't use an accountant!

Does nobody remember rising house prices in the 70s? I had a very modest two up two down. I worked with a girl of similar age - she and her husband were renting but looking to buy. Nothing was good enough for them. Prices began to rocket and they ended up with something worse than they originally turned their noses up at. Meanwhile we made a profit and moved upwards.

Norah

MaizieD And it will do nothing for inflation, because our current inflation is not being caused by too much money swilling around in the economy. I don't understand how people don't understand this.

*People don't agree with you, simple really.*

Why don't they agree with me? It's not an 'opinion', it's economic fact.

I get my information from economists. Where do they get theirs?

Not allowing for rate changes, I'd guess this is much of the problem now.

Yes, it is, plus the fact that renting is so expensive and is essentially paying somebody else's mortgage.

When I was forced to sell my house 10 years ago, I owed just over £60,000 on the mortgage, but I was unemployed (through illness) at the time and nobody would give me a mortgage. Since then, I've paid just under £100,000 in rent and have nothing to show for it.