Bank Rate Increases

Bank of England Rate Rises

Why I think BoE should stop increasing interest rates to let the current changes settle: This is just my opinion and these are my justifications for my thinking.

3.5% is 3.4% increase on the rate at inception of the rises, the people this is having an impact on are having to fund not only a huge change in mortgage payments but also increases to their bills and food as well as transport and this has all happened in under 12 months.

By increasing the bank of England base rate every time the Bank of England meets this gives the impression of?uncertainty and unease which is not good for the economy and this has an effect on the confidence for businesses and investors as well as ordinary people whether working or retired or unemployed.

We now have a ferocious two pronged attack on inflation with Jeremy Hunt’s budget that is squeezing people from a tax perspective as well as the Bank of England using bank interest rates.

We are seeing unprecedented levels of striking for pay increases to counter the increases to the cost of living so by making everything less affordable to suppress spending a bi product is people striking to make things affordable again, the higher prices rise the more people will want their pay to compensate and when successful this will somewhat defeat the initial objective. In the meantime the strikes are further inhibiting the economy to grow or even stand still?and are also a threat to small businesses hanging on by a thread. They are potentially life threatening where health services are involved on a scale that could end up putting to shame COVID figures. All very frightening situations. Every action has a reaction.

Here is my simple maths. Someone earning?￡50,000 a year for example is perhaps currently spending an?extra ￡5,000 a year in mortgage and bills, they go on strike for 10% pay increase and we are almost on net zero. (tax and national insurance will erode around ￡1,000). In a high price environment, if prices then subsequently fall to pre inflationary levels the wages are now ￡55,000 and the inflationary costs at 3% = ￡1,500 meaning we have ￡3500 of extra disposable income, ￡2500 after taxation to fuel future inflation, alternatively prices need to stay high to counter this and then inflation is still a problem!

We are walking a tightrope and the journey is becoming more and more precarious. If the bank has increased interest rates on 9 consecutive meetings this is a demonstration that we are out of control. GDP is shrinking and we are in danger of re entering 2007 situation of sustained and prolonged recession. We need people to be working to pay mortgages, taxes and bills and surely it is better to let the current changes embed and take effect instead of constant changes that as soon as we get to grips with one change the next one is coming in. Are people concerned like me?that this strategy will lead?the bank to reduce interest rates to kick start the economy again in the near future like in 2008/2009 and reset the clock ?

If on Feb 2nd bank demonstrates?that 3.5% rate is showing signs of being effective by not raising this further,?this will provide a positive signal to the country and its people, a calming that will enable confidence in the UK economy and a faster way out of a long lasting and crippling recession, perhaps even calm strike action and perhaps also stop people betting on interest rate changes.Uncertainty is terrifying and unsettling it is not good for physical or mental well being and it is not good for economic growth.?

Who is really suffering from these increases? I would suggest middle Britain who do not have the income to cut their spending on the goods and activities that are fuelling inflation in order to pay the higher cost of living for their mortgages food and bills. The wealthy whilst perhaps inconvenienced to different degrees are still able to enjoy holidays restaurants and hotels who have increased their prices to cope with the rising cost of bills, food and borrowing and so the problem perpetuates.

Let us stop looking at the US and start looking at our country as its own entity with a clear vision and a sensible path back to prosperity. A vision that understands that most people have finite income and resources and that this is not elastic it does not stretch it breaks. I would be interested to hear what others think.