Should the Bank of England raise rates?

ended 17. March 2022

The Bank of England is widely expected to increase interest rates again this week, in an effort to control skyrocketing inflation. But should it? This morning, Newspage sought the views of small business and charity owners, and financial services experts, from around the UK.

16 responses from the Newspage community

"This marginal creeping up of rates by the Bank of England isn't helping anyone, nor is it coming anywhere near to containing the inflationary pressures we are seeing. Not to mention, it won't stop the substantial price rises that are now baked into the economy and are on their way. Raising rates is such a blunt tool, not to mention that base rate rises only really work with demand-pull inflation. We are experiencing cost-push inflation (the bad kind), which will likely only be exacerbated by further base rate rises. "The current situation is ludicrous. A typical household is about to face a N national Insurance tax hike, colossal gas and electricity bill increases, food price rises, and to help everyone out, we're about to make the most significant single debt most householders have, their mortgage, more expensive. "Not to mention, push too hard on rate rises now and there's a very real risk of prices flattening, and a worry they may reduce. Given the government is on the hook backstopping a lot of high loan-to-value mortgages, at a time of economic pain it's not such a wise thing to put more pressure on public finances by lumping private mortgages into the mix."
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"Should the Bank of England raise interest rates? Without a shadow of a doubt, yes. Can consumers and households afford it? No, far from it. While logic dictates the Bank of England should raise rates to rein in inflation, restrict borrowing and increase saving, it doesn't address the basic issue that, due to extravagant lending over the past 15 years, the majority of people can't actually afford to flick the debt switch off. Households are so leveraged that rate rises, even small ones, have the ability to cripple people financially. They're hanging over the average household like the Sword of Damocles and the Monetary Policy Committee knows it. Ever since the Global Financial Crisis of 2007/08 and the arrival of Quantitative Easing, Threadneedle Street has created a synthetic booming economy. The banks have been lending phenomenal amounts of printed money, creating excessive debt, allowing consumers to buy whatever they want, and buy it now. This has led to inflation getting out of control and now, with the war in Ukraine causing the price of oil to surge, individual households have been left 'in the cold' metaphorically and literally. The Bank of England is in an almost impossible position."
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"Increasing interest rates to control inflation is the wrong policy at the wrong time. Current UK inflation is primarily being driven by external international factors such as rising gas and oil prices and Chinese supply issues due to Covid. Hence, trying to dampen domestic demand, and therefore inflation, by increasing interest rates seems naive at best. The cost of living crisis will more than dampen UK consumer demand. And UK consumers don't need a double whammy of rising mortgage payments and rising bills."
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"I've seen the likely interest rate rise being described as 'headwinds' by a number of people, which is odd as battling rising costs for the average small business feels like trying to control a hurricane. We'll keep our chins up and try to stay positive but I implore the Government to do more to help as the next 'headwind' will be the number of SMEs going bust."
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"Energy price rises, fuel price rises, tax increases, food price rises, seemingly everything is on the way up. But the issue is that the biggest price increases are on essentials, not things we choose to buy. So is adding to what is widely touted as the biggest decrease in our standard of living for decades by increasing interest rates really that helpful? Inflation isn't rising because we're all feeling flush and spending our money on luxuries, it's rising because the essentials of modern life are all skyrocketing. Fingers crossed that the Monetary Policy Committee see that and don't add to the misery, as increasing people's mortgage payments isn't going to bring down the price of petrol."
"The Bank of England once again finds itself in a very tricky situation. Most people in the finance industry are expecting a rate rise this week to try and dampen rampant inflation. However, it's not clear that this will help with our mainly Covid-related hangover of supply chain shortages and an energy crisis created from years of bad energy policy. Adding to the cost of borrowing now will hurt many small businesses and households, but it's likely the Bank of England will feel it has no choice."
"There are specific reasons for the current inflation we're seeing and raising the Bank of England base rate now will do very little to fix the problem. We have all seen huge energy price increases and more are yet to come. Coupled with the upcoming National Insurance hike, this means that many people will struggle and many are already having to choose between heating and eating. By increasing their mortgage payments, this financial strain will only become more severe. Most agree that we are heading for a very tough year ahead, and raising rates now is not the answer."
"The Bank of England base rates rises we're currently seeing might be short-lived depending upon how events around the world evolve. The wolves of recession are circling and a brief period of rising rates will give some manoeuvrability should that pack attack and the Bank needs to respond. Events are moving at such a pace that perhaps the best route is to keep calm and carry on for now, making plans to take action if the longer term does indeed look bleak. Frankly, all bets are off."
"The Bank of England is stuck between a rock and a hard place as it seeks to balance the importance of combatting inflation with the risk of choking off economic recovery. Higher fuel bills and taxation are already set to hit households with a double-whammy in April. Making it a hat-trick of higher mortgage payments is not without risk to an economy still recovering from the pandemic and facing the uncertainly of a war in Europe."
"With the price of everything rising faster than an octogenarian on Viagra, I think it would be churlish for the Bank of England to raise rates, as much as controlling inflation is its remit. Increases in fuel, food, utilities and then mortgage payments will make things very tough for lots of people. The impact on the wider community will increase the need for foodbanks and other charity sectors as well as potential for extra benefit requests via the DWP. Whatever they choose to do, they have a very hard decision to make."
"As much as it adds to the existing pain, I do think we need to wean the economy off its dependence on ultra-low interest rates. Inflation is running riot, and could remain high for a couple of years. It will cause huge damage to the economy if we're not careful. Many government bonds are index-linked, so the interest payments alone could become eye-watering. I think we need to continue slowly raising the base rate and take the medicine now. Or we could be storing up far greater problems later on."
"There are huge economic decisions to be made right now and the terrible situation in the Ukraine has muddied the waters further. I hope the Bank of England chooses to sit tight as too much tightening will lead to an even worse fate, namely recession. With higher fuel prices, the National Insurance increase, expensive gas and electricity bills, higher mortgage rates than three months ago and higher costs for trains and food, there is obviously less disposable income available to spend. A further squeeze on the consumer isn't necessary right now in my view. Central Banks cannot say it out loud but this inflation is also good for the debt on their balance sheets."
Not again!! I know there is a need to curb inflation but this is going to hit the people who can least afford it yet again. It may well provide a short-term fix but will ultimately not lead to long-term solutions and may force even more small businesses to shut their doors. And that can't be a good thing...
It almost feels like a paradox to make things like buying paying your mortgage more expensive in order to curb inflation. It's a very "don't worry, we know what's best for you, just trust us" situation. The truth is we are now addicted to cheap credit. What we don't seem to hear too much about is that the government probably isn't too gutted with high inflation as inflation erodes the monumental debts it's taken on to keep civilization together since March 2020. It might be another story if there was election just around the corner though.
“This rate rise was as good as set in stone. With inflation predicted to move higher over the coming months, intensified by the rise in energy, commodity and food prices, the Bank of England's hands were tied. While the Bank of England cannot do much about the supply chain conundrum or skyrocketing commodity prices, it does have the ability to raise interest rates and that's exactly what it's doing."
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"In theory, the Bank of England is doing the right thing by raising interest rates to control inflation, but equally doing it now when so many people and small businesses are already on the breadline and struggling to make ends meet feels like it is out of touch. People's spending power has already been obliterated and the last thing we need for local high streets is customers and businesses having to deal with higher borrowing costs. For many small high street businesses already crippled with debt from the pandemic, an increase in interest rates could spell the end."