{"id":71454,"date":"2023-08-23T07:41:57","date_gmt":"2023-08-23T06:41:57","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=71454"},"modified":"2023-08-23T07:41:57","modified_gmt":"2023-08-23T06:41:57","slug":"the-economic-grown-ups-at-the-bank-of-england-are-heading-us-towards-armageddon","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2023\/08\/23\/the-economic-grown-ups-at-the-bank-of-england-are-heading-us-towards-armageddon\/","title":{"rendered":"The ‘economic grown-ups’ at the Bank of England are heading us towards Armageddon"},"content":{"rendered":"

As the Bank of England noted in a blog<\/a> yesterday:<\/p>\n

Higher interest rates are putting pressure on indebted corporates through higher debt servicing costs. Such pressure increases the likelihood of defaults on corporates\u2019 debt and may lead some firms to reduce investment and employment sharply. Defaults can increase risks to financial stability directly through reducing lender resilience, while sharp reductions in investment and employment can indirectly affect financial stability by amplifying macroeconomic downturns.<\/p><\/blockquote>\n

This risk is, of course, what the Bank of England has chosen for the UK economy without it ever being able to justify that decision with any identifiable impact on inflation.<\/p>\n

The result is the risk identified on the following chart:<\/p>\n

\"\"<\/p>\n

After the risks of Covid, corporate debt risk fell in 2021. And since then, as is app[arent from the dotted lines, which are described as projections, they have increased considerably.<\/p>\n

This is, of course, the consequence of interest rates rising from 0.1% to 5.25% at the behest of the Bank of England, with the forecast being that they will now peak at 6.1%.<\/p>\n

The consequence is that 50% of larger companies and 70% of medium-sized firms face real debt difficulties.<\/p>\n

I stress that this does not mean that all these businesses will fail, but it is likely that they will, as the Bank suggests:<\/p>\n