Interest rate rises and you and your business

ended 03. February 2022

At midday today the Bank of England is widely expected to increase interest rates to 0.5% to contain inflation. The cost of living is already soaring, and will get worse from April given rising energy prices. And now borrowing (mortgage/loan) rates will be going up, too. In short, it's a mess. Questions below. 

  • Is the Bank of England right to raise rates, or are its hands tied?
  • How will rising interest rates impact you and/or your business?
  • How confident are you compared to this time last year?

If you're a Premium Newspager, your response will be edited by a seasoned hack. Keep your responses short and sweet and, as you always do, speak from the heart. We'll leave the sterile macroeconomic guff to the macroeconomists.

15 responses from the Newspage community

Star Quote
"The Bank of England has to deal with the ultimate double-edged sword. On the one hand, it needs to address the current inflation rate and raise rates carefully, on the other it must respect the fact that poorer households are already suffering from the current cost of living, with significant price rises across energy, food, clothes and other household necessities. The Bank of England really is between a rock and a hard place and will have its work cut out in 2022."
Star Quote
"I am seriously concerned that the Bank of England is not looking at the wider picture. The economic theory is that, with high inflation, you increase interest rates to reduce consumer spending and control inflation. However, with soaring energy prices and the cost of living crisis, does anyone really think we need to dampen consumer spending? Higher energy bills will mean that many people will have to make cut backs in other areas anyway."
The Bank of England has little choice but to try an control inflation by increasing their base rate and many believe that we can see a number of increases throughout 2022 as this high level of inflation is here to stay at least for the medium term. Many will find this year a tough one, particularly due to the huge increases in energy costs which if course further increase inflation overall.
"As far as I'm concerned the billionaires of this country should be the ones made to pay rather than increase interest rates for everyday people and businesses. The cost of living squeeze and rising interest rates will push more and more people over the edge. How the Government thinks it can level up when ordinary people are being squeezed from all sides is beyond me."
The BoE really has no choice to raise rates to try and prevent inflation rising any further. It's not just all the huge increases in food, fuel and energy costs, labour shortages in many areas of the economy are also forcing employers to increase wages to attract staff. A vicious cycle could ensue, that embeds much higher inflation into the economy for the long term. If that happens, then we could see 'normal' interest rate levels of 5% and a house price crash. Reining in out of control consumer debt, including mortgage debt, may be another factor in their thinking. In my opinion, Rishi Sunak's stamp duty holiday was a disastrous policy decision. All it did was make housing even more expensive. Any savings buyers made in stamp were wiped out in higher prices. Inevitably, it will make it tougher to grow our business, as mortgage market conditions get considerably tougher.
"If you are borrowing money then you don't want rates to go up. If you are saving money then you are desperate for rates to go up. Either way, interest rates need to rise to ensure inflation does not spiral out of control."
The Bank of England is stuck between a rock and a hard place with above-target inflation on one hand and the cost of living crisis on the other. Households are about to be hit by a double whammy of increased energy prices and the hike in National Insurance. Coming off the back of the Covid pandemic and unfolding Brexit disruption, today's decision is surley one of the toughest facing the MPC for a very long time.
Your can't hand brake turn in an oil tanker. If you've ever had the pleasure of attending one of the Bank Of England's briefings, one of the things that is often said is that the UK economy is like an oil tanker and any interventions made now, wont have a meaningful impact on the economy until many months later. Yet here we are, with the prospect of another rate rise, to try and stem inflation. It feels like we are trying to desperately pull levers to bring down inflation now, but have we even had time for the last rise to actually impact anything? What about the much talked about energy price rise and the National Insurance increases; wont they have the same effect as an rate rise, helping to curb run away prices? It'll be interesting to see what the Monetary Policy Committee do today, but of more interest will be to read their reasons why in the coming days.
The BoE will have to raise rates to try and tame the inflationary beast that's out the bag, although I fear it's going to make the problem worse, not better. At the same time as spiralling energy costs, making borrowing more expensive for businesses and consumers alike can't be a good thing especially when the government is imposing a tax hike at the same time to add fuel to the fire. Make no mistake - it's going to get ugly. That said it's probably the lesser of two evils. Will it constrain house prices - unlikely because of the huge disparity between supply and demand.
The Bank of England is now on the edge of a cliff to manage the rising inflation, but I think unless one has been living under a rock for the past 10/12 years, rates were at some point going to have to go up and it looks like the time is now as messy as is it may be they don't have much choice now.
The Bank of England is stuck between a rock and hard place and has to come out fighting in order to at least try to temper inflationary pressures. This could be the first of a few rises this year, but the worry is that this will have minimal effect, because of the nature of this cost-push inflation. This will continue to drive prospective buyers and those looking to remortgage to act sooner rather than later as they flock to lock into some of the lowest rates before they inevitably increase. Added to the increase in energy bills we are all facing it may seem that peoples borrowing power starts to wain slightly as lenders take into account these extra costs. That said, lenders remain eager to lend and this competitive pressure will ensure that the mortgage market remains very much open for business and still affordable to most borrowers.
With todays expected interest rate rise, its a good time for businesses to review their current borrowing and assess the impact of future rises. With inflation soaring, more rate rises are expected in the coming months. While Boris may still be partying on, the low interest rate party looks like its coming to an end!
Better an increase in the cost of borrowing, than an increase in the cost everything. Although an unpopular move with borrowers, the BoE need to increase interest rates to control inflation. It's a positive move for those on low incomes who will be struggling with increased cost of basic goods and services such as food and heat. Savers will also relish the potential for better savings rates on money in the bank. Unfortunately, the vast majority of the population have a mortgage debt and are likely to see an increase in monthly repayments when the current fixed rate deal ends.
We are getting hit left right and centre. With the cost of living and energy prices only going one way, we don’t need a right hook from the Bank of England. This time last year we came out fighting, quietly confident of our business recovery over the year ahead. Now the gloves really are off.
With inflation it is a difficult decision for the Bank of England as they need to slow down inflation but the rising energy costs need to play a factor as peoples bills are going to increase massively. For sure peoples affordability needs to be looked at more carefully and rising living costs needs to be factored in.