Rishi Sunak gave the clearest possible indication during the course of his budget on Wednesday that he believed that the Bank of England should do all that it could to control inflation in the UK. He was, of course, implying that he thought that the time for an increase in UK interest rates had arrived.
We do not know whether the Bank will act on his hint as yet, although the clearest possible indications have been given that they will sometime soon. The UK's High Street banks and building societies have not waited though. As the FT notes this morning:
UK banks and building societies have started to increase mortgage rates in response to rising inflation, signalling an end to the era of ultra-low borrowing costs and piling further pressure on household finances.
As both the Resolution Foundation and the Institute for Fiscal Studies have noted since the Budget, most people are worse off because of it, with the middle classes being particularly badly hit in their analyses, although as the New Economics Foundation has pointed out, by assuming the £20 a week cut in universal credit an already done deal they have understated the impact on those on lowest earnings. The best off are, of course, impacted least.
What we now know is that Sunak's measures were the least of the things to worry about in his budget announcement. It was always going to be what happened in the real economy that mattered. And now we can see that his desire to increase the cost of living for UK households is going to have a real impact.
I just hope many remember this whenever it might be that we vote again.
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The middle class exists as a buffer zone for the elite. These developments are a reminder of that, but again we have the problem of no electoral alternative and an MI5 approved Leader of the Opposition. Abstentionism is likely to rocket, offering further political scope to the current dominant ideology. With a large majority and a supportive media, this is also an early ish term experiment with getting bad news out of the way. The hope is that your predictions are correct (Covid plus recession) and that the bad news keeps on coming, but that means pain for the many, which is hard to celebrate. There appear plenty of people wanting to be kicked more and harder and do not underestimate the diversionary potential of Brexit, as exemplified by today’s gutter press’s concentration on flag waving and fish. You don’t need to send missiles to start a war and those who can recall the internal political benefits of the Falklands will fully appreciate the risks here.
We finish paying for our mortgage this November after 15 punishing years of paying it off as quickly as possible and I cannot tell you how happy we are at that!
Liberation day!
The biggest threat to households and companies is the energy price crisis which will also push many into even more debt on top of the interest rate rises. It looks like the government may increase the pricing “cap” on gas and electricity tariffs preserving these companies’ profit margins and further lining the pockets of the Tory party donors.
You are clearly right that inflation is a risk right now. When current fixed deals unwind and the present cap ends energy costs are going up hugely (we are one of those whose provider failed so we are on another company’s default tariff for the moment) and a combination of Brexit, supply chain problems and petrol prices will soon be feeding through to a lot of other basic household expenditure. Plus the increased taxation and drop in benefits to the poorest. I am not sure a threatened small interest rate rise will add a lot to that but it will surely decrease people’s economic confidence and readiness to spend rather than save.
Not all of these things can be laid at the government’s door though many can. And I have no sympathy with them trying to deflect responsibility for oil and energy prices or the consequences of Covid – after all the Conservatives were quick to blame Gordon Brown for the global banking crisis and (for those of us old enough to remember) Harold Wilson for the seventies oil crisis.
I was distracted from your case though by the claim the “middle classes” would be badly hit. The shorthand description of the population in classes that might have had some relevance a hundred years ago now obscures rather than clarifies. The historic “upper class” with their aristocratic wealth hardly exist – though there is a loosely-defined group of the richest in society who mostly wouldn’t self-identify as upper class – and many successors to the unskilled “working class” are now skilled operators of sophisticated machinery. “Middle class” has become meaningless, I recall seeing a Daily Mail headline when the additional tax rate was being introduced (on salaries over £150K) saying it was an “attack on the middle classes” (they used similar wording over a proposal to end charitable status for private schools). I think what you meant was “those with incomes around the national median”.
Doesn’t help that the guardian is also publishing articles warning that “the days of cheap mortgage deals are over” with commentators in the article saying that interest rates have to rise and there is no reason why banks shouldn’t pass the rate rise on in full…
I despair.
I’m glad I’ve got 4 more years on my fixed rate and a plan to clear the balance shortly thereafter